KLA Corporation (KLAC) Earnings Call Transcript & Summary

All right. Good morning, everyone. Welcome to the 2022 KLA Investor Day. It's great to have everyone here in person. Thank you so much. Also, it's great to have all the folks on the webcast, including KLA employees listening in. It's because of their collaboration, innovation and execution that this is all possible. And that's even more true for the working team here at KLA that helped pull together this Investor Day. It really does take a village, and we appreciate all the effort. Thank you very much. We couldn't have done it without you. I'm going to kick things off by going through our agenda. We're going to start the day with our CEO, Rick Wallace, who's going to talk about sustainable outperformance. If there are 2 words that really capture the theme for the day, it would be sustainable outperformance. You're going to hear about that from Rick. You're going to hear him articulate it further, and you're going to see throughout the rest of the presentations how we build upon that. Rick is going to pass the stage to Ahmad Khan, who's our President of the Semi PC business. Semi PC is our largest business. It's also our most differentiated and highest margin business. And that's a lot to say when you have 3 businesses that are all really good margin businesses. So we're really happy to have Ahmad go through the outperformance road map, talking more specifically and in detail around how we're going to drive the performance that we're going to talk to you about today. We're then going to take a short 10-minute break. We'll come back with the next 2 businesses, the next 2 KLA businesses, led by EPC. So while SPC might be our biggest business, EPC is our newest business. It was formed in 2020. And many of you know it is the combination of Orbotech, SPTS and a prior acquisition that we did named ICOS. And Oreste will talk more about the exciting growth drivers in EPC, more specifically automotive, as well as advanced packaging. He'll then see the stage to Brian Lorig, who heads our Services business. Brian will talk about the durable revenue stream that we have within Services, how we run a best-in-class service business and some new updated long-term targets as well, which you'll hear about as well throughout the day. And then, of course, we'll take another break for 10 minutes, and Bren Higgins will come back to help us conclude before Q&A, where we'll cover the long-term target model. So many of you have probably seen. And if you haven't, you should take a look at the press release this morning at 6:00 a.m. We announced a very large capital return plan. In addition to doing that, we also spoke about the 2026 target model, which you'll hear throughout the day. It will be building out, and then Bren will help tie it all together. We'll then have Rick back up for some short closing remarks before we go into an extended Q&A session. And we did try to design today to have more engagement around Q&A, extended Q&A sessions. And of course, for those of you that are here in person, when we're done, we'll conclude the webcast around 12:15 or so, 12:30, and we will go next door just right outside to have an executive lunch. Before we kick things off, though, we're going to need a disclaimer. This is our disclaimer. It's very comprehensive. It's been updated. I will say that we will be making forward-looking statements that are subject to the safe harbor provisions. This disclaimer will be made available at the conclusion of today's presentations as well as all the presentations that you see. We will post all of them as PDF on our IR website, if you want to refer back to anything or if you feel like not taking any notes, you'll be able to refer to everything you saw today. And last but not least, we also mentioned in our press release that we are reaffirming our guidance for this June quarter. We do have 2 weeks in the quarter left. This was the original guidance we provided back at the end of April. And the quarter has progressed so far according to plan. There have been no changes made. So with that, it is my honor to invite to the stage our CEO, Rick Wallace. Rick?

Well, good morning, and thank you all for taking the time. We know you have a lot of choices with how you spend your time and really appreciate you spending it with us today. Hopefully, it will be informative. There are a couple of things we're going to do. One, so talk about the overall semiconductor industry, which many of you know a lot about. So for today, what we're going to do is map some of the developments in the industry to the impact that it has on KLA and how KLA should perform based on those changes. So we'll do some bridging of what's going on in the overall industry, plus give you an update on how we're doing across the businesses, as Kevin mentioned. And then, of course, we're going to close with the service be last and then Bren will give the financials. We did preview some of that in the release that we had, including the share repurchase and the increase in the dividend, reaffirming our confidence in our business as we go forward. As all of you know, the semiconductor industry is now ubiquitous in a number of industries in this driving change in a way that we really have never seen. We've never seen semiconductors be so pervasive, and the reason that's important from an investment perspective is unlike in the past, we have an industry that's broader now, which means it is less susceptible to the ups and downs of any single particular market. For example, it's blended between consumer and enterprise. There are strategic investments as well as competitive investments that are going on as well as capacity-based investments. For KLA, we're going to share our innovation process. I'm going to spend a little more time today talking about the operating model, how we run our businesses because I hope that, that will help you understand how we've gotten to where we are and why we're confident about our position going forward. We're also going to talk more about the overall business model resiliency, the fact that we have absorbed Orbotech into KLA and yet returned to similar financial performance that we had prior to the acquisition. And that demonstrates some of the capabilities that we've had as a company in terms of driving our success. What we knew in 2019, we had our Investor Day in September of 2019, and there were a number of factors we were aware of at that time and then there are some things that, of course, have happened since. Number one, we knew that there was a broad base of applications for semiconductors in 2019. It was very clear that there were a number of drivers, a number of industries that were interested. We saw the beginning of EUV in 2019. So we knew that Moore's Law was going to resume, at least scaling would resume. We'll talk about Moore's Law, actually, but the scaling was coming back. And we were at the beginning of this digital transformation. That's what we anticipated. That was what the underlying basis was for our plans in '19. We also had early indication that process intensity -- process control intensity was growing. We saw it in 2019, and that was the part of the basis of our belief in our plan that we laid out at that time for 2023. We also codified and communicated the operating model specifically in conjunction with the Orbotech acquisition. There were some questions, how could a company like KLA that hadn't been outside our core apply our operating model to other businesses? And we made the case then, and we're going to show our work now on how we did that. A couple of things that changed. And we're very fortunate, I would say, surprises. Number one, the number of design starts in advanced nodes has reached an unprecedented level. And we'll share some of that data and the implications of that are pretty significant. We have seen that scaling has returned and the economics of advanced nodes has returned to the industry in a way that is driving new investment by our customer. That's not an accident. What's happening in terms of the large number of investments at the advanced node is based on the economics, and we'll share some of that data. And of course, we went through a pandemic, which really at the beginning of it, no one was really sure what that -- the implications were going to be. But clearly, what happened is it accelerated digital transformation across many industries. It also highlighted concerns about supply chain resiliency, which gets to our last point is regionalization of semiconductors became a factor and a topic around the world in terms of, as people look at supply chain shortages, we had politicians, for example, that didn't know what semiconductors were but knew they were impacting auto production. And so we had people around the world saying, perhaps this trend toward moving all the semiconductor manufacturing to Asia, we need to rethink some of that. So there's been a fair amount of work going on, and I'll share some of that and what the implications are from an investment standpoint for the industry. This data is well communicated now. There are several estimates out there, and I've confirmed this as recently as a few days ago with customers and also analysts, the expectation that the semiconductor industry gets to about $1 trillion by 2030. Some estimates higher, some lower. Independent -- relatively independent over that longer term of some of the macro concerns that might be happening now, for example, is the industry will grow at a higher rate because, as I mentioned earlier, there are so many additional drivers to semiconductors. And those additional drivers, in many ways, make the industry more resilient. Because in the past, if it was PC or mobile, you had a cycle where there was an inventory buildup, there was investment, and then there was absorption and digestion of that. And that was part of what contributed to the cycles. What we're seeing now is multiple investments in multiple vectors, some that were relatively surprising. We heard about it for a long time, but we just started seeing it happen. So we're going to make the case that this increase will drive capital intensity and process control. And we believe that long term, this is a -- we're confident of this dynamic because there's so many end-demand drivers. So one example is 5G. We're relatively early in 5G. 5G kept being invested in during the pandemic, and we see continued investment in 5G, and that has many years to run. But a big part of what's driven this, especially in logic and foundry is the resumption of economic scaling. So what this shows is the period that you backed from 2004 to 2010, we saw this 22% decrease in the cost of a transistor annually. If you go back in time, by the way, Moore's Law was 30%, right? So this is already a slowing of what was considered the traditional Moore's Law. But then we hit a flat point in the curve because EUV kept being delayed, and so there's multi-patterning. So the economics associated with the next-generation node were not very compelling for our customers. Because they looked at that and they said, it's just not worth it that much. And so there were very few devices driving the next node. We're back to scaling at this 23% rate. The other thing, and Bren will talk to this, is this turns out to be the optimal rate of scaling from an investment standpoint if you're a company like KLA. Because you can continue to invest, and those investments last longer because these nodes last longer, and yet you continue to see the next generation. But you get nothing else from my presentation. It should be this chart. This is the number of designs on advanced nodes. As we look at from [ 28, to 2016 to '10 ] on a relative basis, the number of designs, unique designs, different devices and the volume associated with it. Why is this so counterintuitive. Well, for years, the belief was that as we went to the next generation of technology, fewer people could afford it. The cost of designs was going up. You needed to have high runners. So ultimately, the view was we were going to have fewer and fewer players at the advanced node and that was going to be the factor that constrained the industry. So what happened? Why is 7-nanometer now bigger, now bigger a number of designs than 28? Well, a couple of things happened. One, scaling resumed. And so we have a cost advantage of going to the next node. But the other thing that happened is the foundry ecosystem figured out a way to make it much more affordable to design advanced semiconductors. Now it turns out, if you dig into the details of this, the first design is still expensive. What they've done is brought back the cost of the later design. So if you're a year after the initial 7-nanometer or 2 years after, the costs come down significantly because the foundry ecosystem has created massive libraries, AI-driven design tools, SaaS tools to allow people to develop these. So what that has done is 2 things. One, it's driven this number of designs up, but it's also taken out the reuse issue that we used to deal with in the industry because when one design was done, customers would migrate a large percent of the tools to the next design. Now those are being backfilled. The other thing is there's a whole new class of designers. It first occurred to me years ago when we saw Amazon started designing their own chips that suddenly -- and Amazon has several 7-nanometer designs, for example, and they're not alone. Other hyperscalers are doing the same thing. And part of that is the economics associated with design. If let's say, you're running a large data center and you're paying the electricity bill, the reduction in the cost associated with reduction in the use of energy on a new class of semiconductors pays for itself very quickly. It's one thing, if I lower the energy usage of my cell phone and try to sell it to you, I can't make a lot of money on that. But if it's my own P&L that I'm impacting, that's going to drive a lot of this. So now we've seen more and more companies. And I think what you're going to see going forward is more and more players are going to be designing their own silicon as they recognize the importance of having their own capability. Hyperscalers are already doing it. There's one car company that's been doing it. I'm quite confident there will be more, right? Because as they move into EV, there's going to be more. And it's affordable if you're not on the very end. So if you're an investor and you're worried about the cycles associated with the nodes, you have a longer cycle. You have a broader number of users. The economic dynamic has changed because these are self-funding. If I'm paying my energy bill on this massive data center and I can get payback in months, it drives that competition. The other thing that is interesting about this is if you're competing for customers, you have to keep innovating, too. If you go on a hyperscaler like AWS, you can pick from different processors for your compute. And so it drives them to also continue to iterate this design. So this is fundamentally 1 of the biggest changes that's happened in our industry is this inversion. The other thing, if you're in the process control business, this is wonderful. Because what it means is we're going higher and higher mix. If you go into fabs that have very high mix, what's your concern of your foundry running high mix, and I'm running a lot for a customer? I don't want to start too much silicon, and I don't want to start too little silicon. I want to start the right amount, which means that's why process control intensity goes up because I want to make sure that I'm efficient in output so that I can match all these customers. So you have more and more customers, you have more and more designs and you're at the beginning of this competition among them to drive more and more capability so that this continues. When I talk to customers, they believe that 5-nanometer will look very much like this, as well 3. So I think we're on the road of this, and we're talking about scaling continuing through 2025 before we even get to high-NA EUV, which should extend it through the rest of the 20s. Big deal for the industry, a big deal for us. I mentioned regionalization. The chart on here is where semiconductor production that's been. And those of us in the industry knew this was happening. This wasn't a surprise. Just look at our passports over the last several years, right? I used to joke there's no silicon left in Silicon Valley, and I had to have a passport to see 80% of our customers, right? That's still the case. But now because of what's happened in terms of supply chain disruption, there are 60 programs around the world to try to replant manufacturing have capacity, whether it's in Ohio or Arizona, the work that's going on in Europe. So the goal from the CHIPS Act is to get to 50-50 by 2031. If you do the math, that would be very hard to do. That would be very hard to do, right? We all acknowledge that would be hard to do. But if I'm an investor and I want to think about intent of investment, and I'm having these regional efforts to normalize investment to make sure that I have some capacity domestic in the U.S. and in Europe, it means a more sustained, less macroeconomic investment cycle associated with the strategic investments. So we're already seeing commitments. And you all know, once government approves money, they actually spend it a little bit regardless of the economy, right? They'll make those investments because they believe it's long-term strategic. So we're not saying exactly how this will play out. But if you listen to some of our customers, they'll say, "If I don't get the incentive, say, from the CHIPS Act, I'm going to do it in Europe. If I don't get," -- so it's -- they're going to do this additional investment regionally, and that's going to be an ongoing factor for us. And again, if you think about the long term, that's pretty significant. Will we get to 50-50? Obviously, that's a challenge. But I think what we will see is a reversal of that curve of the continuing movement. I think we're going to see that pretty clearly. Back to KLA, you hopefully all know KLA. Just a couple of things that have changed and to point out. One, and Kevin mentioned this a little bit, we're actually over 14,000 now. That was the end of '21, where 40,000 employees on plan to hire, again, to support our growth this year. We've done a good job of hiring. We have found that we're a pretty compelling story for employees, and we're also a compelling story for advanced degrees. And we have 65% of our professional roles are PhDs and Masters. Why? Because some of the technology we work on is world-leading technology. So once -- our challenge has always been to tell our story to talent. Once they understand it, we can get them because we have some very, very compelling technologies that they work on. I'll share that in a second. So who you're going to hear from today is the top team. This is one of those rare occasions where the 5 of us were the same ones that made the commitment in 2019, and we're back to update you. And the rest of the KLA team is the same with the exception of Mary Beth Wilkinson, who joined the company in 2020. A lot of history, a lot of experience across this team. Personally, I've been with KLA for quite a long time. Before that, I was a customer, for those of you who don't know. I was a customer of KLA, I ran one of the first reticle inspection tools, the wafer inspection tool. I actually wrote software in a previous life. My quality of my software caused me to move to management. But what I had and what many of us have is a long understanding of how this industry works, and that helps us operate in this environment. And a lot of what we've seen today is similar to what we've seen with some nuances, which I'll talk about. There is a push and an increased emphasis on ESG from a KLA perspective. We're excited about that. I know many of you, as investors, you have funds that have an ESG mandate. We think KLA is a very compelling story. I'm not going to go into a lot of detail today. There is detail on our website, if you're interested in both in our [ R&D ] work, but also our environmental work. And I'd add as an emphasis, the one thing that we do, we use a [indiscernible] than 1% of the energy in a fab. And if we do our jobs right, we increase the productivity of that fab. So if we do our jobs right, we contribute greatly to increased efficiency from an environmental standpoint. On the governance, we're pretty focused on the 1 thing you're going to hear a lot today, management compensation. Our long-term equity, everybody is going to present, is tied to free cash flow. That's the metric that we use relative to free cash flow. So when you see Bren talk about it, when we talk about it, it's not an accident. And we didn't get told that. We believe that, that's a metric that free cash flow is a thing that we ought to be measured on as a relative basis to revenue and that informs a lot of our decision-making about profitable growth. Let me talk a little bit about the strategic planning process and how it fits into the operating model. And I'm going to do this because it sets up the other presentations a bit. Every company does a version of this, I would think, everybody you talk to. So what's unique about KLA's? There's a couple of things. One, when we get to our financial targets and objectives, penetration share and adoption, these are things that I believe are unique to KLA. We look at how do we penetrate new markets, how much adoption is happening and what market share do we have? Those are things that we drive. And we do that because process control to many degrees, is a choice by customers. If what you're doing is ramping capacity, then what you're doing is just calculating throughput. But for KLA, we have to make the case that there's a return on that investment, and we're going to show you how we do that. We also do this across the company quite a bit. The other thing that we have found when we looked at other companies that we do a particularly good job of is this red team and green team analysis. And I confess, this is in our roots. Ken Levy drove this process at the very beginning of red team analysis of understanding what the competition was doing to the point where we mock up competitive tools. We build competitive capability in labs. We simulate competitive tools. So when we speak to you about our performance relative to others, it's not speculation. It's the process that we go through. And more often than right, history has proven that we were correct. We do red teams, we also do green teams, is what does the market need? Not do what do customers say they want because that's a very different thing, is what does the market actually need? And Ahmad will show and we'll all tell you that ultimately, in this industry, what wins is economics. Economics is what wins for our customers. The most cost-effective process control solution is what wins. They might say they want something else, but we're going to show you more case studies that that's not what happened because if they can solve their problems economically. And the good thing kind of for us is our customers are big enough that they end up doing those analysis, and we feel like our solutions have demonstrated that we win every time when it comes down to overall economics. We look at the operating model. We drive this across all our businesses, consistent strategy and execution, managing biometrics, financial rigor and discipline. I would say that we are well schooled in this. Bren and I sit through every presentation and we drive on this, and some of what we're looking for is these metrics for each of our divisions, there are several in Semi PC. There are several in GSS and in EPC, we added 5. So what's important about this is every division, and there are more product lines than divisions. These general managers are measured by on 4 things. What their market share is in their segment? And we want to plan to get to #1 by a significant amount in every segment. What is their gross margin percentage? And we view gross margin as a differentiator. That's how we measure it. So when you see KLA's gross margin, it is not an accident. It's a result of this process and our discipline around value that we create and pricing that we implement. And then our operating margin, we view as a measure of how efficient we are and how much we drop to the bottom line. And lastly, to make sure we have the talent and that we're attracting talent, developing talent and continuing to execute. We have an advantage of running these multiple divisions in this process because we do best practices. We don't tell everybody how to get their answers, but what we do is we leverage their capability, and so we can port that to the other divisions. So when we added on EPC, we had a Oreste Donzella, who's been with the KLA, introduced them, so for a very long time running that with these processes. We put those divisions through these processes, and that's part of why we've seen the success that we have, and we are confident going forward. I want to talk about collaboration, and this is something, innovation and execution that the rest of the presentations will talk about. This has always been our model for as long as I've been with the company, is work closely with customers to understand their needs, not their wants, their needs. What is technology going to go to? What's it going to look like? And what capability are they going to need? Innovation, investment in R&D is necessary, but not sufficient for innovation. You also have to have an innovative process, and I'll talk to some of that. And we also blend our experience to employees with new employees when we have new skill sets. But our retention rate, our promotion rate inside the company is very high. 85% of our Vice Presidents were promoted from within. Every one of the management team you're going to hear from today started as an individual contributor in KLA. And so we've all grown up in the process and we drive heavily on this innovation. And lastly, execution. Some people ask, why did you navigate the challenges of the supply chain? Not by accident, we do early engagement with operations, supply chain and service personnel in our product life cycle. We don't make commitments to production unless we're confident that we have those things figured out. And the service business, certainly, it has to be serviceable. So these are changes that we made over time as we continue to evolve. The other thing is this hybrid approach for R&D. And I think this is, again, unique. And we can afford this where some of our competitors cannot because of the size of our process control business. Many of you know is 4x our nearest peer. They might be bigger companies, but they're not bigger in process control. We're significantly larger. So we have a dedicated, highly differentiated team that works on core technologies and works with the universities. We also have engineering inside of each of these businesses that I showed you. They often work with pathfinding and understanding customer needs. So marketing, we joke is too important to be left to marketing. So the engineers also do that. and they engage with what is the road map going to look like? What are the capabilities? What are the needs? We have a lot of process understanding in that group. And then we bring this together and then we drive differentiated solutions, and that's part of the process at KLA that gives us differentiation. When I joined the company and when I was a customer, if you looked at an inspection tool, every subsystem was from a catalog. Every subsystem was off the shelf. What KLA was, was an integrator. That's all we did. We integrated -- I mean, not all we did. That's what we did. And at the time, that was innovative. But that's not where we are now. Every one of our subsystems now has deep, deep technical capability. Every one of our resources has that. And the reason we have that is we want to have, in some cases, we're the only people in the world that can get the image sensor that we want. Even though we partner with a sensor company to provide the sensor, we provide all the amplification around it, all the circuitry, all the differentiated that gives us our unique performance. When we talk about laser illumination, some of the products model talk, we make the lasers at this point because we're the only ones that can make them to the specs that we need. When we talk about all these technologies, whether it's AI algorithms, machine learning. Now it's funny, some people talk about AI. We have a very long history of algorithm development at the company. In fact, you would argue that was 1 of the first areas we differentiated on. So machine learning and AI was an extension, and we continue to invest heavily in that, and that has shown up in a number of our products. e-beam and X-ray, a model talked to this. We have very good technology and capability, and I go back to the strategic planning process. We've looked at where e-beam is appropriate in terms of whether it's guiding our inspectors, helping out with our overlay or in review or in one case, we do think there's a use for e-beam inspection and it happens to be in reticle and part of that is the limited area that you have to inspect to do reticle inspection and the performance that you get. We think e-beam inspection is appropriate for reticle inspection. We've looked. I mean, let's be clear, KLA pioneered e-beam inspection. We had the first capability. And the issue was always the same, is you couldn't get the coverage you needed in order to be able to support high-volume manufacturing. So it always stated as an engineering tool. In reticle, it's different, and we'll talk to that. I'm going to give a quick preview of what you're going to hear from Ahmad, Oreste and Brian. This is the Semi PC process control. We gain share. We feel good about where we are in market share. You can see that over time, there's not been a lot of movement in share. In spite of many questions you've asked about how this is about to change over the years, some new inflections, some new capability, we continue. And I go back to the process that we have. I think we do a really good job of understanding the market requirements and what the market needs and implementing. And I think we do an also good job of not being seduced by new technology, which sounds great, but the economics of it aren't what our customers end up employing. And a lot of times, it is not what our customers will tell us. Ahmad will tell you a story today about customers very confident that they weren't going to use Gen 5, and now very confident that we should be shipping them all of our Gen 5. So this is not an accident. We've got a great story In Semi PC, and we're going to talk about growth that we think will continue to drive us. Oreste will talk about EPC. I feel really good about where we are. We have grown the revenue, as we expected. But we've actually, at this point of the operating model, we've driven more bottom line growth than top line growth. So that's something a little bit were dependent on the market and the top line and the bottom line, there was a bunch of a number of actions that we took. This exposes us to a couple of very important markets. Obviously, automotive and advanced packaging. Originally, the original acquisition of ICOS was based on our belief that eventually a lot of the value in the semiconductor would well, you continue to have in the front end, but back end would become more and more critical. In the time that we've developed EPC, Oreste will talk to this, we found that coming true. Most of our major front-end customers are heavily investing in the back-end now. And they're very excited to have KLA as a partner because they know they can rely on us and hold us accountable. Services business has been an amazing story. One of the things we did a few years ago, I think we were the first company to elevate service business to CEO staff with Brian Lorig in that role. And we've had tremendous success as a result. It's viewed as a critical business for our customers and for KLA. Brian has got some great data. My favorite, and I know I'm stealing his thunder, $1 billion in revenue in 40 years, $2 billion in [ 4 ]. Pretty amazing growth. And a lot of that, and we'll talk about the growth rate as we go forward for services, very good business for us and continues to be very strong. So when you add it all up, this is the plan we have. We haven't announced 2022. So this is consensus estimates that we get to about $10 billion in 2022 this year. And where Bren will talk to some of what our expectations around the market, and I know there's a lot of noise in the market. But right now, we feel good about how things have lined up for us with all these drivers that we're seeing in this current era. And I think we're well positioned as we go forward. I mentioned free cash flow, again, non-accident. It is a focus of our -- and it's part of what informed our decision about the dividend and also our decision about the buyback is our confidence in free cash flow. And you can see it trending there. Bren, of course, we'll share some more data with you on that. Then lastly, we do measure ourselves on differentiation in gross margin, operating margin. We think this is a result of intentionality on our part. And I can give you examples of companies we have acquired that were -- would have been on that blue line when we started, and now are on the purple line after we work through both how they run their business, how they price and how they execute. And so we think this is a core competency of the company, is -- and the other thing, and Bren will talk to this, is in this, we absorbed Orbotech, which many of you were concerned was dilutive. And it was, but our view is we can make it better. And we're doing that, and we think there's more room to go. So let me close out with a couple of slides. One, just where we were and where we are now. What you're going to hear is a plan for 9% to 11% revenue growth through '26. Ahmad's going to sign up to 10% to 11%, which would be lower than the growth he's had in the last 3 years, but still outstanding as we go forward. You're going to see EPC 11%, 12% revenue growth and Services up based on the success that we've had and how well we're positioned in the market. And then many of you asked about capital returns, and you saw the actions today. Our ongoing view is we'll return those, we'll increase that target of greater than 70% to greater than 85%. This is it. Then go off slide. $14 billion, $38 a share. And that's just math, right? You take those prior ones, you look at the expected growth for the industry. If you look at our participation in market share, our expectations around process control intensity, our growth in EPC, our growth in Services, we get to $14 billion plus or minus in 2026 and $38 based on that. And of course, we'll share all the assumptions and Bren will go through that in his presentation. So to Kevin's point, sustainable outperformance driven by our operating model. Our target model is powered by what we've been driving for years, and of course, a strong focus on shareholder returns. We already have a focus on cash generation, and we think the best use of cash, of course, is to invest in our business. We do that, and then it's to return the cash that we don't use for that or M&A to our shareholders. I touched on all these. Really, again, glad that you're here and hope you enjoy the deep dives that we're about to start. With that, very excited to announce and introduce Ahmad Khan to walk through Semi Process Control. Thank you.

All right. Thank you, Rick. Hello, everyone. Good morning. My name is Ahmad Khan. I'm Head of Semi Process Control. I will give you 2 things in the presentation. The first is how did we outperform versus the 2019 Investor Day plan. And second is the inflections that are happening in the marketplace. Some of those were articulated by Rick, which deliver outperformance between the '22 to '26 timeframe. All right. Four key messages. First one, we wake up every day to ensure that we are enabling semiconductor industry with designs and everything else that our customers are trying to do. We do this by making differentiated products for metrology, inspection and software. Differentiated is critically important because it really determines that we are actually adding the core value that our customers need. And you will see examples of differentiated products across my presentation. Second one, KLA has always done really well when customers spend money in research and development. But I will show you how we are scaling as customers do HVM. This is changing because R&D intensity is increasing. EUV came in and then many other inflections, which I'll talk about with transistor and memory and all aspects of that. So that is scaling R&D intensity and complexity. And at the same time, HVM, because process margins are reducing, is also increasing process control significantly, and this is a core area of messaging today. Third, customer engagement. This is where the magic happens. We work very, very closely with our customers to ensure that we understand their mission-critical needs and then develop systems well ahead of their needs. Rick spoke about our strat planning process. It is really, really important process by which we determine what our customers' needs and when do they need them. When are the inflections coming into the marketplace? And are we going to be ready for them? Fourth, KLA operating model, critically important to deliver sustainable outperformance every single year. Let's look at Semi PC in numbers. $5.44 billion in revenue, 19% growth from '18 to '21. This was an outperformance because WFE in the same period grew 15.8; 65% gross margin and growing, this includes service; 54.4% share market share versus the nearest competitor, ForEx versus the nearest competitor. Market share and gross margin are 2 important metrics by which I determine if we are doing a good job for our customers. Because they are reinvesting back in the business by giving us more share and appropriately paying for the systems because that allows us to invest back in R&D. We are a metrology/inspection company. You can see 5.4, 54. I was thinking this is by accident. #1 in 7 out of 9. We serve all of our customers. We serve chip manufacturers, OEMs, way for manufacturing reticle, packaging and now recently also in materials through an acquisition that we just completed. 65% is wafer inspection, 35% is patterning. Okay. So let's talk about this outperformance between '18 to '21. But before I go there, I will give you -- share with you a few stories. So I was here in September 2019, I think that's when the last Investor Day was. And at that time, we had only shipped 20 Gen 5s. While a few of our customers were really happy with Gen 5's performance, it was not really used by all of our customers as a mission-critical tool. So we worked very closely with our customers to understand what were their critical needs -- and where are the areas where Gen 5 needs to improve. With about a year worth of development, we improved Gen 5 and released a new version. I'm happy to say that almost every single customer that we engage with is now utilizing Gen 5 as a mission-critical tool. The second part was I introduced a new concept called EUV print check. EUV was just getting implemented in the marketplace, and it was rising up in the number of layers. And we saw that there was a need for an application for reticle requal in wafer fabs. We developed this new technology, and I'll show you later on, which uses Gen 5 to determine only the defects that are coming from reticle to improve the cost of the inspection. With both of these technologies we implemented on Gen 5, we've gone from 20 systems in September 2019 to 100 by end of 2022. Pretty big change. The same goes for automotive. Our strat plan process told us that automotive quality and reliability is going to become very important, about 4 to 5 years ago. Automotive customers traditionally purchase systems from our KTC Group in Brian Lorig's organization, which is really used in refurbished systems. But we felt that this is going to change, and we started getting ready for it. Oreste is going to talk about a case study that he will show, which is a combination of Semi PC and EPC of how we are seeing growth in automotive, but we see that today. I recently had a meeting with a customer, which is dealing with legacy nodes and also automotive, and this message was, "I just need new tools." We developed a new tool called C205, which is Gen 4 based for the automotive market, and we have seen very large growth with that system. All of these stories are the reason why we outperformed, '18 to '21, 19%. Industry was 15.8%. Semi PC outperformed by about 3.2%. We gained share during the same period. We improved gross margin during the same period, really talking about customer collaboration and the customers valuing what we're developing. And this outperformance really was driven by not only R&D inflections and our growth in R&D, but really the implementation of process control in HVM. And I'll share some data with you to explain that. Share. Share is a very important metric, 54.4%. Last time when I was here for the last Investor Day, we made a commitment that we believe we can gain 0.5% share year-on-year. This would have resulted a share of 53.5% in 2023. We are happy to inform that we're at 54.4% already. This has been very good. Main gains were in optical inspection and optical metrology. Again, our plan is very, very simple. Follow the KLA operating model, follow our strat plan process and build unique systems that solve mission-critical problems for our customers. We build those unique systems that are differentiated that solve mission-critical problems for our customers. Our customers come back, give us share and give us a gross margin. That allows us to reinvest back in the business. Okay. So that gives you a story of 2019 Investor Day. How did we do against that? Now let's talk about all the things that are happening in the marketplace that are going to drive sustained outperformance for Semi PC moving forward. So I'll first talk about what's happening in customers' Research and Development segment, R&D. All of this is dependent on inflections. Inflections, I mean is they're going to do something about the process that's going to change their transistor or something else on the silicon. When that happens, all the metrology and inspection modes change and KLA comes in with new systems to solve these problems. In logic, we see transistor completely changing from FinFET to gate-all-around. To power these trends, I believe you can put like 10,000 of these transistors, 10,000 to 15,000, depending on how you calculate the gate length, on the width of a human hair. That's the challenge. You need to find all the defects and characterize these transistors. To power these billions of transistors, you need a new power delivery system that is getting introduced called buried power rail. This is going to bring wafer-to-wafer packaging in the front end. Memory is scaling significantly. High aspect ratios. We had talked about Axion system, which was an X-ray-based system for NAND flash. We introduced that. And now today, every R&D customer is using that system to characterize these high aspect ratio structures. Packaging for high-speed data communication, memory logic all coming together in a single package, and we are providing inspection and metrology solutions for that. And EUV is scaling and logic, very clear. It's number of layers is increasing significantly, and KLA is participating in that, both in the mask shop and the wafer fab, and I'm going to talk about that as a case study today. And EUV is getting introduced in DRAM. And this cycle continues as high-NA EUV comes in. It will change all the metrology inspection modes in every location where high-NA EUV gets implemented. We're using our plan process to guide ourselves with all these inflections and making investments now to be ready. So let's drill down into 1 of these inflections, which is scaled all around. On the left side, you see FinFET. On the right side, you see gate-all-around. You can geometrically see the complexity between FinFET and gate-all-around structures by just viewing that structure. We see growth in Gen 4 based on gate-all-around. And the reason is because Gen 4 has a wavelength that allows us to penetrate 3D structures. FinFET is more 2D and then gate-all-around is more 3D, so you need to go further deep into the structure. And I'll talk about why Gen 4 and Gen 5 is unique because we have all the different wavelengths that allow us to tune the system to the need that the customer has. We will see near 50% growth in layer for Gen 4 as we implement gate-all-around. And in order to do that, we are actually releasing a new version of Gen 4. And what we are doing is taking all the learnings that we had from Gen 5, and we are now moving that into Gen 4. And we'll release a new version ready when gate-all-around goes into production. High-end films is also seeing a significant amount of growth. Now I want to talk about customer collaboration here. I had a meeting with 1 of the senior VPs of R&D about 4 to 5 years ago, that was planning to go get-all-around anytime soon, hopefully. And the question was that will we be able to characterize a get-all-around structure. I talked about 15,000 of these things go on a width of a human hair with an optical metrology solution, and it was very difficult. So as Rick said, we build prototypes all the time. We've built a soft X-ray prototype to characterize gate-all-around for metrology needs. But we know these technologies, while are very exciting, they're expensive from a cost perspective. The cost of ownership of a soft X-ray system would be far higher than an optical inspection system or optical metrology system in this case. But we built it to make sure that the customer feels that they can count on KLA and it's a prototype system. With very close collaborations, we understood exactly what was required for the optical metrology system, and it was really innovation in AI and machine learning that enabled us to now characterize all gate-all-around layers with optical. But we are ready in the future if there is need for soft X-ray. So we see huge growth as these inflections happen. These growths drive our customer spend in research and development and also drives their spend in HVM because of layer increase. So now let's talk a little bit about HVM. We always saw good growth of process control in R&D because you need to really characterize it. From process to process control is very different. In process, you buy a few chambers and you're able to make these structures. But for process control, you have very high intensity in R&D to make sure you can characterize all the different structures. But as customers would ramp the product, go to pilot production and HVM, they wouldn't scale process control at the same rate. We are seeing a change in this. Process margins are getting smaller. The number of designs are increasing, as Rick spoke about. As you add the number of design significantly, you never actually reach full maturity in HVM from a yield point of view. And for that reason, process control intensity now in HVM is increased. Reuse is decreasing. Reuse is decreasing also because Rick spoke about design increases in 7-nanometer. That chart showed an average of 3 years, I believe, of intensity after 7-nanometer was introduced. So customers go in and add more process control to get more yield. At the same time, number of designs are increasing. Because your number of designs are increasing, you can dial in your process for 2 or 3 designs, but as tens of designs are coming in, that those process chambers are varying. And for that reason, process control intensity is increasing. One other thing that is happening is backporting. I talked about EUV print check. EUV print check was introduced, if I say today that most advanced node is N, it was introduced at N minus 1. Customers looked at print check capability and said, "Oh, I can backport this capability now at N minus 2 because I have a few EUV layers." And we have seen backporting of technology in previous nodes because now you're able to increase the yield by a bit more. And the ROI of that is very, very high for our customers. So that's a lot of explanation, but let's just go into the data and see. This is our top customers, top 5 customers, logic and memory, their spend -- their spend during research and development and their spend during HVM for optical inspection. You can clearly see in R&D, intensity is increasing. And you can clearly see in HVM, the intensity is significantly increasing. R&D intensity is increasing due to complexity. HVM intensity is increasing due to complexity and process margins reducing. Okay. So now giving you this viewpoint of R&D and HVM. Now I would like to talk about what is our customers dealing with every single day? And what is the technical challenge that they're trying to solve? This is a 5-nanometer transistor. When you scale that to a chip, you have 15 billion of them. And when you scale that to a wafer, you have 8.5 trillion of them. Our job in process control is to characterize that individual transistor. We have to characterize the chip, and we have to find all or as many defects as possible on the full wafer. If we do any one of these things individually, that doesn't solve the full customer problem, and it's not sufficient. So we have to deal with all 3 of these problems. The only way really to do that is with a broadband system. And with broadband system, what I mean is you have to have wavelengths from as long as possible so that you can find contrast of the defects across all the different types of processes. Gen 4 and Gen 5 combined have wavelengths from 190 nanometers to 260 to 450 nanometers. That's what's unique to KLA. Of course, you can get an LED source and develop a broadband system, but you won't have the intensity and therefore, not the throughput. So you have to do this across all wavelengths, and you have to do it at throughputs that really differentiate. Now why do we need all these wavelengths? Here is a defect inspected at different wavelengths. You can clearly see that at these wavelengths, this defect does not shine and the customer will not be able to detect it. But at this wavelength, it really shines. And that's what we do. Our applications engineers tune our instruments to the best wavelength that is required to find the critical defect. A different defect would shine on a different color. That's our differentiation. Very high power light source that enables to have all the different wavelengths so we can find all the critical defects. That's not sufficient. We have to do it at full wafer scale. An e-beam inspection system could probably do this die in like about 3 days, but our objective is to do all the entire wafer in 1 hour because the defect that is found here is not the defect that is here. So full wafer coverage is critically important for our customers. Full wafer coverage is critically important for our customers. And our [ end ] systems enable us to do that. How do we do it? This is the Gen 4, Gen 5 system. We have 40 years of innovation. We have released 5 versions of this, Gen 1, 2, 3, 4 and 5. The magic really begins with the light source. It is a very, very high power light source, 2x brighter than the surface of the sun. And each year, we are incrementing that light source by about 1.3 to 1.5x. The optics is calibrated for all the different wavelengths. It's scanner-grade optics, but scanners have a single wavelength, we have to calibrate the aberrations for all the wavelengths. The sensors can take equivalent pictures of 2,000 iPhones a second. That's the speed of the sensors. And then after that, all the data that is piping out, which is in gigapixels per second, we process all of that through compute, classic algorithms physics-based AI and machine learning. But all that is not sufficient because we have to increment these products almost every single year because, as I said, customers are changing the defect types. We need to we need to be with that at the same time. So as Rick talked about, we have a very good collaboration with our CTO organization that enables us to increment these products every single year. We have 10-year road maps on light sources, on stages, on optics, on sensors, on image processing to ensure that we will be ready for all those inflections, and our strat plan process guides us to be sure that it would be ready for those inflections. And I think the last part is that our customers are extremely motivated to share with us all the information because we're the only company in the world that makes a full broadband system to find all the defects. We don't make a laser tool. We do make a laser tool for throughput, but the broadband system really covers all of these inflections. Okay. Let's look at optical inspection in summary, $5 billion of revenue since the last Investor Day. We have shipped more than 400 Gen 4 systems by the end of calendar '22, better than 100 Gen 5 systems end of calendar '22. We have released 10 versions of Gen 4 and Gen 5 since the last Investor Day. Like, for example, I spoke about that C205 system, specifically focused on automotive segment so that we are able to now find reliability and critical defect issues in automotive. So that's 10 different versions, Gen 4 and Gen 5, 31% CAGR in '18 to '21, far outpacing WFE, far outpacing semi PC. And while we're doing that, we gain share. Okay. So now we've talked about optical inspection. There's always a question, is e-beam coming and it's going to hurt us or not? So I prepared this slide. I know the fonts are small. I don't like small fonts, but I was told that you are comfortable with them. So I have put this slide together, a lot of detail here. All right. There's 3 segments. First one, e-beam review; second one, e-beam inspection; and third one, e-beam metrology, okay? E-beam review, that's this part of the chart. It scales with optical inspection. Now we have this 1 thing that we constantly watch. 80% of the dollars are going to optical or not. And we've been tracking this metric for the last 15 years. We keep tracking it how much money is going to optical, how much money is going to e-beam. That's all what this slide is. E-beam review scales with optical inspection. Why does it scale with optical inspection because optical inspection does the inspection. And after the customers want to bin these defects that we find for a particular chamber or something else. And they go do e-beam review. So the more optical inspection systems we sell, the more e-beam review scales. So that's the first metric. But we look at 80/20, and it's 80/20. It's on this side. Okay. Second is EBI, e-beam inspection. And I use the Gartner data. This is official Gartner data looking at calendar '18, '19, '20 and '21, optical inspection growth and EBI growth. And you see 80/20. There's some slight growth you see, but in general, you don't see much growth there. But actually, this data is not completely correct because it has e-beam metrology and e-beam inspection mixed in it. So KLA decided -- we always split that internally. And now you're looking at pure EBI, pure e-beam inspection, which really what competes with well perceived competition with optical inspection. And in that case, the ratio goes to 95/5, 90/10, depending on how you look at it, and optical inspection is growing. So we don't see it. But later on, you're going to see a bunch of slides on e-beam from me and then you can ask me why you're developing it, and I'll explain that. So that's kind of 90/10. And then there's the fourth segment, which is e-beam metrology, and there's some growth in this area, and I'll talk about it, but again, greater than 80% of the dollars go to optical. It's similar to the soft x-ray story. Yes, you need it, you want it, but then are you going to scale it in HBM, and we don't see that today. However, KLA is developing an e-beam platform. I talked about eSL10 in my last talk, and we have now shipped eSL10 systems to every customer out there and we're developing a number of other systems. So why are we doing it? Because we really believe e-beam is complementary technology to optical. It's an assist technology to optical. You can always feed some critical information from e-beam to optical to assisted. That's our vision. We are uniquely positioned to do that because we have the largest optical inspection and optical metrology install base. And we bring e-beam technology and connect with it to improve it further. That's how we see it, and I'll talk about that. Two case studies. Case study number 1, Gen 5 plus e-beam assist. I introduced this concept in the 2019 Investor Day. We spoke about it, and I said, we believe optical assist is now coming to fruition, and we're going to develop a product where we will connect our eDRX1 to Gen 5. And I'm happy to report we have finished the development, we shipped our first system and this is the result. Here -- and again, this is only limited to very, very few critical layers, very, very few. Most of the layers will not require this. And therefore, the coupling is limited to very few. But our vision is to support all problems for our customers, not just the ones that are on the trailing edge or the leading edge, we want to solve all the customer problems. Here, we found all the critical defects with Gen 5, but we have this other area, which is called nuisance, and there's some level of defects in this area. You can solve this problem by just running Gen 5 hotter or slower, or there's many terms for that, and you can find more. But the cost of that is not very good and customers don't like to do that. We have built a proprietary connection between these 2 systems, and Gen 5 shares critically important information about the location of defects to the EDR system. And the EDR system goes there and detects the defect and sends it back to Gen 5 and they communicate back to each other with a high-speed connection. And we have been able to double the amount of defects and reduce the nuisance significantly. This is where we believe optical and e-beam come together. We don't believe that e-beam will come and do a full wafer inspection. There's just no physics that supports it. We see the same in metrology. On the left side, due to the increase of EUV, we see overlay measurements going up significantly. Let me just briefly explain overlay. You're building a building, you have constructed the floor. Now you're going to build another floor, but not on top of it, on the side, and you bring it on together, all the pipelines have to connect to each other. If not, the waters will leak. So alignment of 1 layer to the other is critically important, otherwise, you have defects, you have parametric problems. If this was the latest generation advanced node, and this was one before, this is one before. We see a huge growth in overlay -- optical overlay measurements, huge growth because of introduction of EUV and many other factors. Just to give you a perspective, this is 200,000 points per lot that a wafer will go through in its life. So you can now do the scaling, it's significantly high. And the reason is because you're packing more and more transistors together, and now you have to align everything perfectly. So the only way you can do this is measure more or you could do something else, improve the accuracy of overlay. And what we do is we bring e-beam technology that enables us to drop the accuracy significantly, and we have done this. This was an SBI paper published recently with an advanced logic customer, and you can look it up. They presented it together with KLA. E200 is a new technology that we're bringing in, e-beam based. Again, KLA is uniquely positioned to deal with this inflection because we can combine the 2. Okay. So I've now articulated optical inspection growth in e-beam. Now let's talk about our reinvestment process and by -- which are the important areas we're investing. And I'm going to talk about reticle inspection. First, this is the chart that shows it's a result of the differentiation that we bring to the table and the gross margin that enables us to reinvest back in the business, and we continue to invest a lot in semi PC to deliver the returns. In reticle inspection, we're also increasing spend significantly. There is a huge inflection that is happening in reticle because of EUV getting introduced, the pitch at the reticle is changing. Let me describe what a pitch is. A pitch is the distance between a line and a space. Why a line and a space? Because you have a wire and a separation of a wire. If there's 2 wires together, it's a short, so you need to always align in the space. And as you make a wire smaller and thinner and thinner, you can put more wires and that means you can scale. Reticle only scales when you change EUV wavelength. Otherwise, it doesn't scale. So when EUV got introduced, reticle pitch changed. So KLA decided to invest significantly in reticle. We are actually reducing our optical inspection spend, increasing our e-beam and actinic inspection up significantly to be ready for the inflection. Let me describe the market first. There's 2 aspects of the market. First, what I would call is an established market, which ranges between 800 million to about 1.2 billion today in reticle. And this is really about pattern inspection, reticle blank inspection, reticle metrology, print check and IC qualification. All of that inclusive is between $800 million to $1.2 billion. KLA participates in that. We have a share of about 70% in this segment. There's a lot of improvements that we're doing in this segment to make sure that we continue to scale. There is a second market, we call it path finding, where there's a lot of information that says this market be -- would be either between $200 million to all the way to $600 million, it's a big range. And there's 3 reasons why there's a big range. First, next-generation pitch requirement. I just described that, what is a pitch, the pitch is the distance between a line and the space, and when you shrink that and when do you shrink that. Number two, mass pelliclization. We have not seen mass pelliclization to date. As you know, in memory, there is no plan to do mass pelliclization. In foundry, you can pick your number between 50% to 65%, no pellicles. And then in logic, there seems to be a gravitation towards more pellicles. And number three, high NA EUV, which is really linked to pitch reduction. Okay. So this chart describes the availability of choices our customers have. You can use a 193-nanometer scanner, you can use EUV scanner, you can use EUV double patterning or you can eventually use high NA EUV. And on the Y-axis, we have the minimum pitch. 193 really it stops at around 80-nanometer pitch. And KLA introduced multiple systems to meet that requirement, and we have very high share in the 193 and immersion land. This is the multiple systems, they meet our requirement. Okay. When EUV was first introduced, the claim was that you can take that 80-nanometers that I talked about and reduce it all the way to 26 nanometers. However, due to a number of reasons, when you drive the scanner very, very hard and due to infrastructure like RECIST and other things, the cost of doing that becomes high. And most customers have kind of settled in this range. I don't want to give the exact numbers due to confidentiality, but this is where most customers have settled. So originally, we thought if the pitch will reduce that much, we need to go develop a high-resolution system. But as usual, product teams, they are very innovative, and our optical inspection team said, oh, if the pitch is in this range, I think I can improve the system significantly and get 90% of the theirs. This is what's happening in the market today. We are using our 193 system to inspect close to 90% of all reticles in the mask shop. We have been able to implement machine learning and physics-based algorithms that enabled us to scale plus optics exchanges in the tool that brought us here. The remaining, which is around 5% to 10%, is going to our new multi-column reticle inspector, which we have shipped to multiple customers already. We believe this is a very few number of layers. They may or may not happen. But if they happen, we have the capability for our customer. If they don't happen, optical inspection systems will serve it. Now next thing customers will do is EUV double patterning. I don't want to go into the technical reasons, but actually, when you go to double patterning, there's a Goldilocks situation on pitch. Actually, at reticle, you relax the pitch. So we think this just moves over. In fact, it might get moved up a little bit, but I don't want to say that. That's where it might settle. And then when high NA EUV comes, you can really shrink the pitch. That's why KLA says that for 5-nanometer, 3-nanometer, 2-nanometer, we think our optical inspection 193 system, along with 8xx multi-beam reticle inspection system is sufficient. And when high NA EUV comes with severe pitch reduction and mass pelliclization, you can bring in an actinic inspection system. We could have developed that earlier, but the complexity of the actinic system is much higher, and that's why we chose this path. And therefore, we are confident that we are ready for the market at the right time. And we're giving actinic the appropriate time to do the development and be ready whenever high NA EUV will be available. Our 8xx system is shipped to multiple customers, and we have this 1 technology called die-to-database. Die-to-database is unique to KLA. Die-to-database ensures see on wafer you can miss a few defects, but they are process-induced defects. But in reticle, you cannot miss any defect because it will print on every single die on all across the wafer. Die-to-database enables us to find all of them. 8xx systems are shipped to multiple customers and doing well, and we're developing our 7xx system in line with high NA EUV. So I'll show you a quick video to show you the flow of how the inspection will be done. Here is a reticle with a defect going through the scanner, printing defects and printing chips on every single wafer on the die. We don't want that, our customers don't want that. We want to detect that defect in the mask shop and not let it come out. So our mask shop optical 193 reticle inspection system catches those defects. But as I said, mass pelliclization is not happening so this defect can get implemented through transport through a number of different reasons. But we will catch all of them with our optical 640e system. When this reticle, the remaining of the 5% in the mask shop will be caught with our 8xx high-resolution system, so we are saying by 640e and by 8xx, and customers are taking on to that. That's why we have shipped multiple 8xx systems. Now this reticle goes into the wafer fab. It may or may not have pellicle. If it doesn't have pellicle, KLA developed a 670e system that enables you to do pellicle-less reticle inspection. Or if you have pellicle or you don't have pellicle, you have a second defense, 670 will catch as many as possible. You have a second defense, which is Gen 5. Gen 5 will find the repeater defect and process-induced defects, but the unique algorithms take all those process-induced defects out, and you only see the repeater defect. And therefore, this is our solution for the wafer fab. Gen 5 plus 670. Mask shop, IC wafer fab established market, $800 million to $1.2 billion, 70% new market, $200 million to $600 million, and we are watching that very carefully and developing these solutions for our customers. Okay. EUV reticle in review, greater than $2.2 billion in revenue for all EUV related to reticle, right? So it includes print check and all the reticle inspection. It doesn't include like -- we have incremented Surfscan systems to determine chemical issues related to EUV and resist issues, that's not in this number. This is just related to reticle in that. Greater than 30 640e systems have been shipped and are using. This is 640e systems, only EUV system, not counting 640 optical systems, EUV systems, that are implemented. So when I say 90% of all reticles are inspected through this, yes, because we have shipped 30 systems and we're continuing to scale. Greater than 50, 670e plus Gen 5 systems implemented in HVM to do reticle requal. If you combine the established market and the new market that I talked about, greater than 85% of all reticles go through KLA, and we have more than 300 die-to-database systems running from the inception of when die-to-database was developed until today. Huge amount of experience to develop this technology. It's not easy to develop. This is our entire road map for reticle. One more thing, there's petabytes of data being generated at wafer fab. Wafer fabs are getting larger and larger. Metrology and inspection systems are generating a lot of data, and our customers need support to organize this data and make it actionable so they can control process tools. We've been doing process control for many years, but about 5 to 7 years ago, we decided to ramp this up with organic growth and a number of acquisitions that we did that is growing this segment. Our customers are delighted that we're doing it. This is not FDC. This is process control. All the data from defect, all the data from metrology, all the data related to alignment of wafers. All of those together, we're able to put intelligence with algorithms and turn it into actionable results. This is now a $200 million business and growing. With that, this is our commitment, $5.4 billion today, going to $9 billion. This assumes a WFE intensity of 7% to 8% and semi PC CAGR, 10% to 11%. We'll be growing share, driving margin and technology. Those are the 4 messages. Again, we wake up every day to make differentiated systems to help our customers. Our relevance in R&D is increasing. Our relevance in HVM is increasing further. We have deep customer collaborations. This is where all the fun happens, and it's all the collaboration that is critically important for us to understand what they need and our strat plan process guides us the road map, and then the KLA operating model delivers the returns. That's all I have. Thank you.

Thank you, Ahmad. Great. We're going to go to break now. So 10-minute break, we are running about 10 or so minutes behind schedule, but we're still going to stick with the same time break, 10 minutes. Control room is going to keep us on us. As they're going to put it up there. We'll do our best to make an announcement at the 5-minute mark before and you should -- when you hear that, you should think about maybe coming back. Thank you. [Break]

With the second part of the day focusing now on EPC. And I'm very happy to have with us, as I mentioned earlier, Oreste Donzella, who is the Head of EPC. Please welcome Oreste to the stage. Oreste?

Thank you, Kevin. Happy to be here after 3 years in New York City live. Today, I'm going to share with you the progresses plan that we made in EPC starting from the Orbotech acquisition in 2019, also giving you an idea about how we implemented the operating model that we introduced officially to the investors and to the rest of the community during that particular Investor Day. My main message here, first of all, starting from operating model. Operating model is essential the successful integration of the newly acquired company like Orbotech and SPTS that came along with Orbotech. So we were able to have a much larger participation in the markets that we serve. We were able also to make sure that we are operating efficiently in terms of our spending, in particular, in R&D, but not only. And this is -- this can be confirmed by the numbers, I'm going to share later. Then I'm going to pace the presentation. The 3 differentiators that Rick mentioned before, collaboration, innovation and execution, how the operating model is guiding us to leverage these differentiators on a much broader market base that we serve versus the original semiconductor process control that KLA has been serving for 46-plus years. So Rick showed this slide. I think this is extremely, extremely important. And I would like to say the most important point of this slide is the 2 numbers together. Because one thing is to show revenue growth of 15% CAGR in the last 3 years. If you remember, we said a double digit in the Investor Day in 2019. We were able to exceed our plan with 15%. But also, this needs to be in correlation with what we are showing in the operating margin CAGR of 40%. These 2 numbers don't match easily together because sometimes in order to achieve revenue growth, you are sacrificing the R&D and the ability to grow the share or you are going to sacrifice R&D because you want to gain operating model but -- the operating margins, but in that case, you don't deliver the top line revenue numbers that you are projecting. So the 2 numbers together are extremely, extremely important. And the figures show of this is, again, the operating model. It gave us the possibility to overachieve in the top line, but also show an incredible operating margin growth in the last 3 years. And then Rick introduced how we are exposed to many different markets, in particular, the most exciting that I would like to share are automotive and in particular, advanced packaging. So this is our journey. So it started a long time ago, actually much earlier than the Orbotech integration, with the acquisition of ICOS. ICOS was our first attempt to enter the packaging arena with a differentiated supplier in final inspection, what we call component inspection, final package inspection and metrology. So we kept ICOS stand-alone until we find [indiscernible] after we acquired Orbotech and the SPTS that came along. So now the EPC comprises these companies, ICOS, SPTS and Orbotech. We are in the stage of integration, and eventually, we are making -- we are taking advantage of the operating model at KLA. So numbers. We closed the '21 close to -- '21 revenue close to $1 billion. As I said, the 15% revenue CAGR, including what we estimated this year to close and the 40% operating margin in CAGR, including 2022 estimate. Also from gross margin, we have seen a 400 -- we are seeing a 400 basis point expansion in our gross margin. We have 2,500 employees spread all across the globe. One important point is all this revenue that we are -- I'm mentioning in my presentation are system revenue. All the service numbers associated to these new business and new divisions are reported by Brian in the next presentation. So one thing that is unique about EPC, the reason why the title of my speech is the EPC business expansion, is because again, after playing and serving the semiconductor front-end market for many, many years, KLA with the acquisition of Orbotech, SPTS was able to expand also the reach into the electronic supply chain with new markets like PCB, display specialty semiconductor, of course, strengthen our position in packaging, not only component but also wafer level packaging, wafer level assembly and ICOS. So the expansion of KLA in these markets will offer a significant opportunity for growth of the company outside our core business in semiconductor process control. And this is represented by this chart. This chart that some of you may have already seen in other presentation represent the entire electronic ecosystem. So from the start -- from the silicon, from substrates, from reticle, up to the end of product, smartphone or a bolting the car or in a data center. And then you can see the circles are where the 3 business groups are represented here. If you look at semi PC that Ahmad presented earlier, so this is in the front-end side of the fabrication of this device, and then you see EPC overlapping with the semi process control, a little bit in semiconductor front-end and the packaging then moving forward, leaning towards the final product and of course, the services across the board. So in this case, we have seen an opportunity while creating EPC and developing new collaboration with the customers not only to collaborate with our direct customers, but with the entire ecosystem, with the car manufacturers, with the mobile OEM, with data center, other scaling companies and so on. So we see more and more exposure to the end of products by having EPC in our portfolio. And of course, when you look at 2 of the end products, smartphone and the electronics in the car, you see that EPC really touch all the electronics components of these products. And staying in automotive, I have few more details later in my presentation. Automotive is really the secular shift. It's an incredible, incredible inflection that we have perceived the change in the last -- chip shortage in the last couple of years, how electronics, how semiconductors, how boards are becoming absolutely essential to the production of the cars and the vehicles because many, many more components are inside the car and the vehicle, and also because of the complexity of the qualification of semiconductor or electronics inside a car. I'll touch base a little bit later in my speech. So it's not only diversification in terms of end markets. It's not only the EPC is touching the final products in the previous slides, and saying how we are diversified -- how our business is driven by very, very different markets. But also inside EPC, we are very diversified. If you look at the 4 markets we serve with our 5 divisions, specialty semiconductor is mostly driven by automotive and smartphones. But if you look at, for example, components and printed circuit board that are mostly in the PCB and the packaging space, you can see a big exposure, very significant exposure to smartphone and data. When I say data, it means data center, but also EPC and laptop. And then a filing flat panel display is mostly exposed to consumers. So this diversification of the end markets with multiple, multiple end drivers, those diversifications internally inside EPC give us a sense of stability because these markets sometimes are not in sync given the possibility to play pretty much any single market that we see is going to grow more in the next maybe a couple of years. So it's a good play to be because we have this incredible diversification, not only in the market, but also inside the EPC division valuation. Now let me switch the gear and talk about the core of my presentation. That is how the operating model is really driving EPC to be best-in-class in the differentiators that historically at the foundation of KLA's success that are collaboration, innovation and execution. Let me start from collaboration. There is no surprise when we bought Orbotech, also SPTS and also with the previous acquisition of ICOS that we wanted to expand the presence of these companies across the board in semiconductor also. And at that point, we're thinking about packaging is going to be essential to the semiconductor technology road map. And the fact that we were seeing at that time 3, 5 years ago, the biggest semiconductor manufacturers investing in packaging gave us an opportunity to open the door of these customers to products from Orbotech, SPTS and ICOS. And I remember 3 years ago, I went to talk to a top customer in packaging of one of these top 5 semiconductor manufacturers, and he told me, "you know what, I don't believe you have anything to offer to us. " So that's it, period. So the same person I met last month and he told me how happy he was that KLA now is a player in packaging with all the product portfolio that I'm going to talk a little bit later. So the fact that we were able to open the door for Orbotech or SPTS solution to these top semiconductor manufacturers in packaging was extremely, extremely important. And this is just an example. I can have more also in automotive, for example. So and also the possibility to collaborate earlier with our customers and also with their customers. That again is another part of the playbook of KLA. We operate across the electronic ecosystem in a broad way. We don't limit our collaboration to the direct customer. We talk to their customers and what we create this big ecosystem of value that we can provide to every single specific industry we serve. So this collaboration, again, give us the possibility to develop a differentiated product portfolio or portfolio of solutions. It is important for us to stay at the top of the supply chain, at the top of the market share in the next future years. So let me start from this example, and this is something that I care personally a lot because this was a pull from the automotive industry. 4, 5 years ago, as Ahmad said, we got pulled from car manufacturers, and I show a little bit 3 years ago in a separate presentation of automotive, what we were doing at that time. So the automotive market was asking KLA to provide ideas of methodologies, best practices to screen chips for reliability in the fab because the biggest, biggest issue the automotive market is facing right now, maybe it's only second of chip shortage but chip shortage is temporary, the reliability probably is not temporary, will stay there forever, is to make sure they can find reliability failures before the chip is mounted on a board and eventually installed in a car. Because whenever the chip fails in a car, induces a huge liability and the huge cost. So they said, "okay, Kelly, you are the best in class for process control." It's great that we have the possibility to increase the yield, but let's go further. Let us know if you can do anything for reliability, because reliability is driven by same difference that they can impact the yield, but they go to the next level of being subtle. And sometimes they can escape the function and electrical test and become a huge liability because they fail in the car. So since then, we introduced the so-called I-PAT that is our in-line part average testing methodology, machine learning based. And the I-PAT now is retaining some of the critical specs for some of the automotive makers. And not only open a very good growth opportunity for semiconductor process control, like Ahmad reported before, because together with I-PAT, we created also a portfolio of products tailored to the automotive market that Ahmad has been developing in the last 3 years. On top of that also, because we are EPC, we would like to talk about SPTS as well. Our specialty semiconductor market grew quite a bit in automotive. Why? Because of the inflection that we are seeing now in electrical vehicles, because the silicon carbide. I think most of you have known what silicon carbide is. It's a different type of material than silicon, is very hard to etch. It's very hard to treat. It's mature. It's very, very low yield. Perfect for KLA. So we can improve the yield. We can improve the quality, a quick and even etch with plasma etching technology in SPTS. Now it's all in, and you can see in the chart also huge improvement on the system revenue of SPTS, that is the lighter purple in the chart in the last couple of years in automotive. Packaging. So what is happening, packaging is absolutely unprecedented. So packaging has been like this low end industry for many, many years. You wrap a box around the chip, you put in a package, you protect it from environmental damage and then you ship to the board integrator and then eventually gets in any product. It's no longer the case. Now packaging is an enabler of the semiconductor technology road map. More law is resuming, and you saw the presentation from Rick and Ahmad. I'm so happy, I have been in the industry for 30 years. So 23 years in KLA, before I was a KLA customer working a semiconductor fab. And I see this flourishing of new technology coming in, a new innovation semiconductor make me happy every day. And -- I love it and I keep my passion and my love. And I spread it to my kids and so on. And I'm a big ambassador of this semiconductor industry. I will be forever. But now we need something more. The semiconductor front end cannot be sufficient to deal with this appetite for data that is happening right now. And when you have data, of course, the speed of communication between memory and processors where it will be sometimes, and having all this function on a silicon chip is becoming expensive. So what has happened? There is disaggregation. What happens is the packaging in particular, and there are many, many different packaging types available around in the market, I'm focusing only on this. This is the high end, the highest end packaging type supporting data, supporting data centers, PC, high-end laptop and so on. And there are 2 things I would like to remark on this slide. First of all, the logos in the left of this slide. So these are the people driving the technology road map of packaging right now. These are the same people driving the technology road map in the front end. So it's a great play for us. We know all these people. We know because KLA has been [indiscernible] 46-plus years, and now we have the opportunity to work with the same companies, as I said in my previous remarks, and then becoming a relevant player in packaging as well. And the second thing I want to say is the complexity. So at the same time, the packaging industry is trying to do 3 things. They're trying to put together heterogenous integration type of package, what does it mean? More chips with different functions inside 1 single package. So we have DRAM, we have GPU, we have controller logic, we have CPU and so on, in the same package. The second thing is the geometry is shrinking. So in the next 5 years, geometry of packaging will shrink much more than the previous 50 years because now everybody is trying to apply the same lateral scaling that we have seen in front end, of course, relatively in packaging. And the third thing is now this integration is getting more and more vertical, and we see all these 3D parts. I would like to start a video right now. [Presentation]

For example, metrologic chip and then you combine together the famous chip type of architecture and then all the integration needs to be done seamlessly and aggregate as many function as possible in a single package on a piece of substrates, either [ interpoles ] or organic substrates. And of course, all this process is increasing complexity. And not only complexity, also a lot of risk because what happens if one of these chips is going to fail, all the packaging is gone. So it's a huge impact to the economics of our customers. Rick said, it's all about economics and packaging is all about economics too. So you want to make sure that you have as clean as possible wafer of chip when you integrate these multiple chips on a single packaging because otherwise, the cost is enormous. So KLA played the page of our playbooks in this case. So we went to talk to customers and start collaboration in particular with the top 5 semiconductor customers that we know very well, and they are the biggest influencers right now in the packaging road map. We have 30-plus joint projects, and when I say joint projects, it means on-site evaluations with the top 5 semiconductor manufacturers in packaging and IC substrates. And to make stuff more complicated when you try to connect all these chips, generally today it's done via bumps. And this is the mechanism that you use to make these multichip packaging. But in the future, our customers, because the license problem between a chip-to-chip becomes so important, so essential, they want to do direct bonding. That means they want to get rid of the of the bumps for some of these interconnects, and they want to do die-to-die or die-to-wafer or wafer-to-wafer direct bonding connection. This is extremely complicated. And it opens up a huge opportunity for KLA because of the complexity of these direct connection. For example, the wafer that is going to welcome all the other chips on top and needs to be extremely clean because even a small seed, a small defect, when you connect a chip on top of the wafer, you can create a void. And when you create a void, you will never see the void. So you need to make sure that your wafer is spotless, no particles, no defect. And the other thing is the wafer needs to be very, very flat. So the geometry needs to be very well controlled. So of course, the KLA has tools from front end. That pattern has been developing for years that now we are deploying in the back end, in the packaging. And this is just one example. Of course, we have also process tools from SPTS that have been developed to serve this particular inflection in the market. Okay. Let me give a couple of examples. First of all, I want to talk about ICOS. And again, this is our final inspection. This is not to be taken for granted. So doing a final inspection today at the speed that the packaging industry needs, and now the complexity of the package itself is extremely, extremely difficult so we are developing new products. We are developing a tool that can, first of all, handle larger form factor package because the packages are becoming bigger because they need to integrate many, many, many chips. And the second thing is we have the very new optics to find a smaller, smaller defects and we are developing new metrology capability to make sure that the package is very, very flat. It doesn't really curb when you place in a board and eventually in the end product. So ICOS, you can see the revenue only for this particular segment, that is what we call 2.5D and 3D that is pretty much a data segment. The revenue is going to -- they are increasing quite a bit. We expect this growth to follow. And talking about the process tools, although I believe a plasma dicing, although when you think about etch, this is not a specialty metrology. It's a process tool. I would say this is a process control tool because today the way of the industry is cut wafer because, of course, we don't put a wafer on a car, we put a chip and the packaging the car, so the wafer needs to be cut or singulated or dice. Today, the industry is using mechanical dicing or laser dicing. All these processes are extremely dirty because when you put a saw and you try to cut a wafer what happened, you are cracking the wafer. We are creating the lamination chips, particles. The same is with laser. So the cleanest way to cut the wafer into plasma, but it's not easy. So what with the level of SPTS is the ability to have the entire process integration, not only the actual process step that we develop in SPTS, but also the other process steps to make sure that we have a lab where our customers are sending samples and we can give them the full solution. And we say "okay, give me a tape frame wafer, and I'll send you pretty much diced already." And we have the possibility to show how this plasma dicing process works. And eventually, you see the difference. I hope that you can see there, but on the right, this rough edge die -- rough die edge that are created with blade dicing, the saw, and on green, super clean edge die that you create with plasma at SPTS. So of course, what happens. The plasma dicing booking is going up quite significantly. Silicon carbide dicing is going to be an incredible challenge that we are taking right now in SPTS. We'd like to provide the automotive makers in the next few years also the ability to do plasma dicing on silicon carbide, the only player in the world that can do is SPTS. And of course, leading into my innovation part, innovation doesn't happen with our collaboration. So the SPTS plasma dicing tool called Mosaic, just received the Queen Award in the U.K. Of course, SPTS is a U.K. organization. I was very honored and humbled to receive this award that The Lord Lieutenant of Wales handed to me, and I was explaining how dicing work to The Lord Lieutenant of Wales that it's kind of an interesting challenge there. I hope I got him on pretty much what we were trying to do, but he gave us award, so it seems that he understood what we work for. Innovation. Second topic, innovation. We didn't talk much 3 years ago. We were focusing on how we can organize these companies, successfully integrated from an efficient point of view, from a cost point of view, but we didn't say much what we can do from technology innovation integration, and now we are doing it, and I'll give you a couple of examples. First of all, I'd like to talk about the long history of KLA innovation that, of course, some other Rick talked about, and this is something that makes me proud every single day of my life. We have a lot of innovations and technologies that we can leverage in EPC that came pretty much free. And I'll give you an example, PCB. So one reason why we bought Orbotech was because we knew at that time that PCB was going high end. Because we knew that PCB eventual is going to deliver the so-called IC substrates that are so essential for the packaging technology road map, is so essential to the semiconductor growth road map. But we knew also that the industry was behind. Was behind to find defects, was behind to do photolithography. So what we have done, this is just an example. There are plenty of examples, I'll give you only one. So we create a product coming from the convergency of 3 different technologies, the Orbotech platform, the stage that is built in the center engineering in [indiscernible] organization, the optics designed by our city office. So we put all this together, and now we are creating a tool that our customers will deploy in the next few years to see difference that the PCB industry has never seen before. And this is thanks to the operating model, thanks to how we can deploy technology innovation from KLA into EPC into new markets. Finally, execution. And of course, I'm going to talk about where we are versus what we presented as a deal thesis of cost synergy. Very happy to say that at that time, we said $50 million, and now we are at $92 million cumulative synergies here. You see all the buckets there. So he came from of course, public company code, corporate overhead, but also business rationalization. So we were able to use rationalization of our spending to target only the growing segments, the growing opportunities where KLA and in this case, EPC can play a unique, relevant, differentiated role. And that's at the core of KLA. How we target opportunities is paramount to when we needed to grow our company. So we don't want to go and shoot for every single opportunity. We want just to serve the applications where we know we are providing a unique role and a unique value. So this is from cost point of view. And from -- as I said, this is just last chart from packaging. From a revenue point of view, this is the expansion in package, you can say. We are talking about generating double CAGR versus the previous history of KLA. So we expect to have 24% CAGR from 2019, where we bought Orbotech to 2026. And this goes all the way into wafer level package IC substrates, but also assembly and test. And finally, this is the chart showing our revenue forecast for 2026 and our revenue plan that Brian is going to talk more in details later from $0.95 billion to $1.65 billion. So adding another $700 million in the top line for system-only revenue, and it comes from $290 million how the market is going to grow. We expect the aggregation of this market to grow 5%, 6%. And then you can see the other buckets where we expect to outperform the market either in packaging, automotive and even display. And this is my last slide. Thank you very much for the attention. Again, everything I want to pass is operating model, essential, and we validate it. We validate in markets that are not the KLA core markets. This is quite important. And the second thing is how we are applying the differentiators from the KLA playbook in many different markets. The differentiators are, of course, collaboration, innovation and execution. And now I'm transitioning the stage to my good friend, Brian, who is going to give us a lot of exciting news about our service business. Thank you very much.

All right. Good morning. I'm Brian Lorig, responsible for KLA Services. So I've been with KLA for 24 years. A great time to be part of KLA, a great time to be in the semi industry. So you've heard a lot about the operating model today. I'm going to talk about how we apply that in our services business to enable the growth of a durable revenue stream. So the 5 key messages for today: First, we are a customer-focused organization. And over the last 3 years, which have been challenging in a lot of ways, our partnership and collaboration with customers have only strengthened primarily because we have goal alignment with our customers to maximize the value of their fabs. Next, we have a stable and growing installed base, and we are uniquely positioned to support the high complexity, high mix and low volume nature of that installed base, leveraging the KLA services network to aggregate that installed base and ensure we're meeting customer expectations. Additionally, we have an evolving data and analytics platform, which is moving more and more of our service from reactive to predictive. Again, the operating model institutionalized in everything that we're doing. We're going to talk about the way that we collaborate, innovate and execute. And finally, that leads to an improvement in our overall growth rate. We've plused it up from our 2019 Analyst Day, 9% to 11% to 12% to 14%. So here is service by the numbers. So first, we're nearly 1/4 of KLA's overall revenue, 22%. That was $1.8 billion in 2021. It's about a year ahead of our 2019 plan. 99% or nearly all of that $1.8 billion is pure service revenue. What we mean by pure service revenue is, this is service contracts and brake fix maintenance. So this does not include things like refurbished equipment. It doesn't include things like upgrade or other WFE centric like revenue. This is just service contract and brake fix maintenance. That speaks to the durability and resilience of this revenue stream as we report it. A few other critical metrics for us. So first, how much of our revenue of that $1.8 billion is coming from subscription-like service contracts, greater than 75%. That's up about 5% from 2019. And more than 95% of that is renewed, also up from 2019. The length of our service contracts are also extending. They're now averaging greater than 3 years. That's an increase of 40% and really speaks to what our customers -- our customers desire to provide more visibility to us so that we can better plan to support their needs. And finally, we grow faster than our installed base. Our revenue grows faster than our installed base, 4.5x faster. And that's driven by not only new installed base growth, but also new revenue from our existing installed base, and we'll talk about that in a little bit. So again, go forward, CAGR, 12% to 14%. So among the reasons that we're confident in that increased growth rate is we believe we're well aligned to benefit from industry megatrends, and you've heard about these in previous discussions. But these megatrends are not just supported by leading-edge technology. They're also supported by legacy node technology. And so when we think about our service business, we think about it across these 3 market types. First, leading-edge development. That makes about 20% of our business. High-volume leading-edge manufacturing that accounts for 45% of our business. And finally, high-volume legacy node manufacturing, which accounts for about 35% of our business. So you saw this chart in Ahmad's presentation, independent of where the customer is in their product life cycle. Whether they're introducing new technology and R&D, ramping that technology and ultimately fanning it out to their high-volume leading-edge manufacturing or sustaining legacy node manufacturing, we're very well positioned in KLA Services to provide customized offerings to support whatever need that customer has wherever they are in that product life cycle. So we talked about we have a very stable and growing installed base, and we have a very unique signature. It's different than other equipment manufacturers in our space in that it's very high mix, it's high complexity and it's relatively lower volume. So let's talk about each of these in a little bit more detail. First, on the high mix. So we have more than 16 product families across KLA, and each one of those product families has something like 12 to 15 different products. So we have more than 200 product lines, or products rather, in our installed base, each serving a very unique customer requirement. That's kind of the power of the KLA portfolio. So if you pick one of those products and you talk about the complexity, you've got a sense for this in the videos that Oreste and Ahmad showed. But any one of those given products has 16 -- more than 16,000 parts in the bill material, more than 300 field replaceable units. And those are across those critical technologies that we've talked about throughout the morning, whether it's light sources, optics, precision control, precision stages, sensors, image compute. And when you look at each one of those particular technologies, we have exclusive relationships with our suppliers. Ahmad talked a little bit about that. Bren is going to talk more about that, but it's a very long time to development on those key technologies, which leads a lot of times to a sole-source situation with that supplier. 10 years in the making, relatively low volume, so KLA is the primary buyer or the only buyer. Which -- and then when you look at that high mix, at any given customer fab, we have a relatively smaller number of systems installed. So again, because of that high mix, the ability for our customers to be able to source parts and/or provide training and keep people proficient in training is very difficult to do. That's where the aggregator or power of KLA Service Network comes into play. We look at that installed base across all the fabs, not just at a single fab in a single country. So this all creates very high barriers to entry for our service. So in addition to high mix, high complexity, low volume, our tools are -- have a relatively long life. So if you look at the chart here on the right-hand side, CY '21, you see the stacked bar totaling close to 50,000 tools. And the stacked bars are what we call classes. So you see a Class of '90, Class of 2000, Class of 2010. So those are the years that we introduced the product and began shipping it. So let's just pick one class here, the Class of 2000 in light pink. So again, we started -- we first introduced that -- those products and started shipping them in the years 2000, 2001, '02, '03, '04. And you see over the next 15 years, we started to ramp that installed base, ultimately reaching its peak in 2015, and then it's relatively flat as you move across to CY '21. In fact, more than 95% of the installed base is still in existence. So that's more than -- so greater than 50% of that installed base is more than 18 years old, which really speaks to the enduring value of the products that we ship. It also is long after our customers have depreciated that asset. And so they are demanding that KLA continue to maintain this equipment, which is both a great responsibility, but also a great opportunity. And because of that, over the life of a tool, service revenue exceeds initial tool price. So now, I'm going to talk a little bit about how the service business again implement or leverages the KLA operating model across collaboration, innovation and execution. So for collaboration. So we think about our collaboration across 3 constituents: First, customer. So this KLA services team is embedded with our customers. We are a true extension of their manufacturing teams, supporting their customer goals. Next, we have deep supplier relationships. Again, I talked about that a little bit. And it's not just about that beginning and product inception, but it's also being able to maintain that continuity of supply throughout 20 or 30 years of the lifetime. And finally, we're very closely coordinated with our KLA Design and Manufacturing teams. Rick talked about how we've inserted our Services team very early in the product life cycle, and we're present throughout the life cycle, again, in ensuring that we're going to be able to support our customers' goals. So just a little bit more about our collaboration with our customers. So I can tell you that we do a good job of this, but ultimately, the way we measure our collaboration with our customers is how much revenue or how much of their spend is done with KLA. And secondly, of that spend, how much is on a KLA Services contract. And so you see the chart here on the left, from 2001 to '21 over the last 20 years, we've steadily increased both the amount that our customers are spending with KLA as well as the amount of revenue that's coming from service contracts. So that's the CY '21, greater than 75% number. And if you were to double-click on that CY '21, you'd find that products like our latest generation BBP, our latest generation reticle inspection, our latest generation PCB tools, all those have contract penetration well north of 90%. So why is this happening? There's a few environmental factors. First, our customers are experiencing record level of factory utilization. So utilization rates are running greater than 95% for more than 24 months, so there's really sustained, significant high utilization rates. Next, we all know that our customers are expanding geographically. And when our customers expand geographically, it not only puts pressure on the home country, but it also puts pressure on that new ramping factory. And so this growing importance of specialized talent -- our customers are focused on their core competencies. They're depending on KLA to be able to ramp up their new factory as well as depending on us even more in the home country as they've had to ship resources abroad to help support that new factory. And finally, this renewed emphasis on reliable supply chain. If you think about our service business, we are a critical supplier for our customers. And this renewed emphasis, we talked about this enduring value of our tools in the long life, very difficult to sustain that lifetime. And so our customers are coming to us, giving us much more insight into their ramp plans, into their long-term plans, extending service contract life to ensure that we're able to support them over the long term. So this increased complexity usage and urgency is driving increased service contract penetration. We expect to continue to drive this. Now, this is not just on leading edge, this is also legacy node customers. So this is -- this chart is a very important trend for us for both our service business as well as our product business. So on the right-hand side, you see this is a legacy node customer and how much money they spend with KLA. And while it's a customer, this is representative of many of the legacy node customers that we're working with today. So over this period of time, this is revenue that you're seeing. This is basically the same installed base. So this growth is not related to installed base growth. It's relatively the same installed base. So you see from CY '13 to CY '18, relatively flat spend with KLA Service. And why is that? Well, our customers had factory utilization rates at 70% or 80%. Pretty stable manufacturing process, and they did not -- their customers weren't changing any requirements for them. So they were running a fairly stable manufacturing process. And so what did they do? Well, our customers did everything they could to save a dollar. So they were harvesting parts from underutilized assets, they were leveraging secondary tool market to buy tools, they were utilizing their underutilized resources and/or trying to get third parties to come in because they have this flexibility given that they were running at lower utilization rates. You see this starting to change in '19, '20, '21. If I had the '22 barked on here, you'd see an additional uptick. And what's happened with our customers is their factory utilization in this legacy node has increased just as it has on leading edge, so now you're above 95%. And the end customer requirement, think about the automotive charts that Ahmad and Oreste talked about is zero defect, the end customer requirements have increased significantly, so our customers' manufacturing environment has changed. They need higher reliability, quality, faster delivery, more performance. So this positions us very well to be able to support our customers and drive this additional revenue. So what do we do? Well, we created a dedicated team to focus on these customers, and that improved our overall collaboration so that we could truly understand what was the problem that our customers were having and begin to collaborate on potential solution sets. And that led us to invest in engineering resources to further sustain the life of the product as well as hiring new resources, training them on some of these older technologies so that we can provide both the labor and the increased inventory investment required to now support this growing demand environment. So hopefully, this gives you a little bit of a sense for the environment that we're operating in. Because of this environment, we have to innovate in every aspect of our business, people, parts, infrastructure, knowledge. So we have a multi-faceted service innovation strategy, so it starts with people. We talked about this growing importance of specialized talent. So we work very hard to attract and retain not just our service engineer talent but also the new talent that we need to drive this innovation strategy. We also recognize that as our customers expand geographically, we have to be there to support them. And so more and more, we're putting more and more resources closer to our customers. Of course, we've always had service engineers, but also now driving engineering resources, more apps, resources closer to our customers in order to accelerate delivery and installation. Next, I'm going to talk about some of the innovation that we're doing to drive our fleet or improve overall installed base. This digital transformation is more about what we're doing to improve the transactional aspect of our business. So we are a high -- for KLA, we're a high-transaction business, and so we look at every aspect of our value delivery chain and look to innovate to improve productivity of the business. We're hiring faster than we've ever hired before, and that requires us to change the way that we're training our resources. It's a long time to proficiency, so we've had to completely reinvent the way that we do that to get people both to time -- shorten time to contribution as well as time to proficiency. And finally, we've invested in mixed reality support, developing more augmented reality-based solutions for remote service, and I'll talk a little bit more about that. So here are 4 specific initiatives that are aimed at driving customer value, and again, aimed more at our installed base management. So first, Digital Twin, this evolution of the KLA Digital Twin. So we've been doing this for a long time. It started many, many, many years ago, manually with lots of spreadsheets. We move to ERP and ECO controlled, and then we're now moving into a much more digital thread, strengthening digital thread so that we have better visibility into how our tools are -- how our tools are performing and independent of where they are in manufacturing or in our customer sites. And this is really important for KLA and has been for a long time because our customers expect that when we ship a tool, it's going to match exactly. Which means if we ship them a tool today, it's got to match the tool that we shipped 2 weeks ago. It's got to ship the tool that we shipped 2 months ago, this tool that we shipped 2 years ago, because they need it to seamlessly intersect in their manufacturing process and produce exactly the same result. We also need to make our equipment smarter, and part of that means sensorizing more and more of our tools to give us the insights of how our tools are performing and whether or not we see any drift to specification and can better predict when a failure is going to occur. Now we recognize that as smart as we make our equipment, we're never going to predict every single failure, so we have to drive an increase in overall digital services. So we've seen a 7x increase in AR/VR-related remote -- mixed reality remote support. This means we can bring experts from around the world directly with a CSE in a fab, connect them and allow them to troubleshoot and problem solve live to drive faster time to resolution, and ultimately, higher availability for our customers' installed base. And finally, once you know that you've got a healthy tool, Ahmad and Oreste have talked about this, virtual process development. We want to try to minimize the time on the tool. And when you have that new process that you want to implement on the tool, you know you've got a healthy tool, which you can deploy and ensure that we can meet customer requirements. So our aim here is really modernizing a toolbox for maximum tool life and performance. And this is the road map. So again, we want to move as much as we can from reactive to predictive. And where we can, we want to automate some of those processes to allow for efficient -- more efficient service delivery. And so you can see on the right some of our progress from CY '17 to current. We've made progress moving more and more items to reactive and predictive and starting to see traction on more automated steps. So we're really excited about our progress here, and we think we've got a great road map. We're going to continue to invest in this because we think this ultimately drives a lot of value for our customers. Okay, so now moving into execution. And ultimately, this is how our customers judge us. Did we do what we said we were going to do? So you can have the best operating model in the world, but if you don't execute, you're not going to be successful. And the only way that you execute is if you have the right talent and the right culture. So we have a very, very strong culture of drive to be better. We look for problems, and that -- of course, that job is never done. There are always plenty of problems to solve. And so we -- our culture is to look for those problems and then drive resolution on them and then go look for the next problem to solve. And that really speaks to our talent. We think we've got the best talent in the industry. Specific to our service engineers, they're some of the most educated in the industry. More than 65% of our service engineers have a bachelor's degree or higher, and that's really because our service engineers are much more systems of systems engineers. They are not technicians doing routine tasks. And these -- it's taking all those complex subsystems that we talk about, put those together and then ensuring that they're working together to create the tool performance that we expect and committed to. And so that leads to a much longer training time to get people to proficiency, 9 to 18 months. Again, that's part of the reason why we've reinvented our training process, to get people to time to contribution as well as time to proficiency. And lastly, a proof point for sort of that extension of our customers' manufacturing operations, more than 4 million hours applied to the installed base in 2021. So the operating model is important not just for driving the existing business and scaling it but also for our inorganic growth. And when we were here in 2019, we talked about how we were going to take the operating model and apply it to some of our acquired business -- acquired service businesses. And the reason that this is important is many times with our acquisitions, we find that their primary focus is on new tool penetration and adoption. They don't have the infrastructure. They don't have the scale to be able to support it, so oftentimes, they're leveraging distributors or even encouraging customers to self-service by providing them all the documentation and means to be able to do it. That changes when they become part of KLA because we deploy the operating model, and there are 4 key parts to this. Number 1 is design for service. Number 2, common systems and metrics, and then finally, leveraging KLA service infrastructure and our go-to-market strategy. So I just want to drill into one of these items, and that's the design for service, because this is where it all starts and is the most important. So we are embedded in our product -- service is embedded in our product design or product development life cycle. From time of inception, we talk about what are the service requirements across reliability, availability, maintainability. In addition to that, we also look to understand what is -- what are the financial returns we expect from service on this product. And throughout a product life cycle, we maintain that discipline, that reliability, availability, maintainability as well as the financial returns. We look at that at every life -- every part of the product life cycle to ensure that we are doing what we need to support our customer and also driving the expected returns that we have. And so you see the results on the right. Our ADE acquisition, you see over 10 years, we were able to double the service revenue per tool on that business. Additionally, embedded in our 12% to 14% CAGR is an improvement of the EPC service revenue of -- by 1.5x. Okay, so this all leads to the results. So we call this our 40-4-4 plan. So as Rick said, it took us 40 years to achieve our first $1 billion in service revenue. We will exceed $2 billion this year in 2022, 4 years later, and we will exceed $3 billion 4 years later in 2026. Of course, this is really important because it's a resilient and predictable revenue stream as well as a strong generator of free cash flow. So here's the bridge, 1.8x to 3.3x in CY '26 across our SEMI PC as well as our EPC businesses. So here's the summary of the points that we talked about today. I'd just like to close by acknowledging all the great work from our global KLA Service team. They were dealt a lot of challenges over the last 3 years, and every step of the way, they were able to overcome those in support of our customers. And ultimately, enable the great results that we were able to present and also give us the confidence that we can continue to grow this business. Thank you.

Thank you, Brian. So we're going to head to a break, but we are going to make an adjustment because we are running behind schedule. So rather than a 10-minute break, it will be a 5-minute break. If you plan to exit the room, please do so now so that you have enough time to get back. We will then resume with our Chief Financial Officer, Bren Higgins, and then Q&A. Thank you. [Break]

Over the last 6 years, I have also oversee the global operations and supply chain organizations. And I had a few questions about supply chain, so I'm going to cover supply chain a little bit today. I'm spending, when I'm not designing big buyback programs, I'm spending an inordinate amount of my time on supply chain issues. And I think it's important to understand about our business and how we think about supply chain management, it is far from transactional supply chain. You've heard a little bit about it already today from Rick and from Ahmad, and I'll dig into some of the details about it. I think it's important to understand what we're optimizing for and then what we accept as a result of that. So I'll get into that. So -- but I'm going to start initially with some financial perspective on our performance, both near term and also over the long run. Also, we'll dig into a couple of issues that have been impacting our financial performance, both in terms of what we've seen over the last number of years but also, we believe, will be factors moving forward. Provide a little bit more context on the capital structure actions that we announced today. And then I'll conclude by building up the 2026 model that Rick referenced earlier, which is $14 billion in revenue and $38 in earnings per share. If you think about our key messages, I'm going to talk about sustainable market outperformance, give you some perspective on that. Obviously, you've heard earlier about what our growth objectives are for the next -- the next 5 years. All of our reference points are '21 to '26. So when you see compound annual growth rates and so on, that's what we're really referring to. That the portfolio strategy of the company is very important in terms of how we go to market and how we compete. Most of our competitors are point product competitors. They come to our customers with one solution for an inflection or a situation. One of the real competitive advantages of KLA is being able to deliver a variety of products that help our customers work through their process maturity, meet technical requirements but also meet economic requirements, and it's an important part of how we invest and how we go to market. I mentioned supply chain. One of the other dynamics, and we talked a little bit about the pace of Moore's Law and what that means. I'm going to talk a little bit about that plus the trends in end demand and what it means to the product longevity, the extendability of our products. And therefore, what it means in terms of revenue, cost optimization, new capability for customers, which means cost of ownership improvement, and extendability of platforms, which affects ultimately our R&D intensity, which allows us to shift resources around more freely. Leveraging the balance sheet. If you've noticed our performance over the last few years, we've been very public with our leverage targets of 1.5x to 2x gross leverage. We've -- with the growth of the business, we've been operating at about one time. And so we want to use the balance sheet, and I'll walk through the construct of how we're thinking about the balance sheet, particularly as it relates to the '26 plan, to, of course, support our growth, look at M&A considerations, but also fuel what we call asserted capital allocation. And if you look at the growth prospects of our organic businesses, what you heard today, there's nothing better that we can do with the capacity of the company and the go-forward free cash flows to augment our EPS growth and accrete our shareholders. So you saw that announcement today. We'll spend more time on it. Takeaway, 9% to 11% revenue growth, 1.5x our revenue growth rate in terms of earnings growth. And our capital return target, given our focus, that we're raising from 70% to 85%. So where were we? September 2019, we were talking about a growth rate of 7% to 9% from 2019 to 2023, embedded in that was an industry assumption. I'll show you some data later. But for the first time, we were starting to see, because of the introduction of EUV and design starts starting to pick up, investments in the logic/foundry part of WFE. It was really the first year after, frankly, a negative CAGR for a number of years. And so while we are optimistic, we really wanted our plan to be focused on what we were expecting to see from our customers and that the industry would do what it would do. And of course, we would participate if it were stronger than that. But that was really what drove our assumption. I'll talk a little bit more about where we are today and where we're going with that. We were also talking about new products. New products that, for the first time, given the spend dynamics, were going to drive process control intensity and KLA share higher. And that was -- for the first time in a while, we were pretty excited about that. Integrating the acquisition of Orbotech, but also a number of smaller transactions that we've been involved in. Ahmad mentioned it earlier about some of the things we've done in terms of our software businesses, for example. Orbotech was important. It needed to expose this to what we call more than more, beyond the wafer fab -- core wafer fab equipment markets in terms of new SAM opportunities. We wanted to take a market-leading position, drive synergies through it to pay for our control premiums, and position it to scale at corporate level incremental operating margins. Codifying the operating model. You've heard a lot about that. Part of that was taken into the integration, but part of it was also pushing it down within KLA to support what we expected to be structural growth going forward. And the capital returns target that had a minimum, we thought would be about 70%. Where we are today is, Ahmad talked about the market share gains we've achieved. We feel very good about where we're at from that perspective. Our share of WFE has gone up. It was in the high -- in 2018, in the high 5s, 2021 looks to be somewhere in the low 6s. I think in 2022, based on the guidance we've provided on the year should put us somewhere in the, I'll call it, in the mid to high 6s. And so we're seeing share of WFE increasing as well. Recurring revenue from services, mid-teens growth exceeded the synergy targets, Oreste talked about that. A big chunk, normal synergies, but also a big portion about business rationalization. How do we take the operating model and go into the businesses, fully allocate the costs and say, this is the profitability picture, these are expectations. There is no moving numbers around to give people a false impression of performance. A transparency to profitability, a very important aspect of the operating model. And we feel very good about where we're positioned from that point of view. We've invested in talent. Rick talked about 13,000 employees at the end of '21. We'll go to about 15,000 at the end of '22. Go back to 2019, it was about -- a little over 10,000. So investing in people really across the organization service operations, of course, to support the growth we've seen, but also revenue-dependent resources across our product development teams and even some of our corporate functions to make sure we could support the activities that -- and growth that we're seeing. We've invested a lot in CapEx. We opened the site, Ann Arbor, Michigan. We're very excited about our HQ2, another significant presence in the U.S. We spent about $600 million in 2019 to 2021, and I'll spend another $300 million in 2022 as we expand our footprint around the world. All of our factories were increasing space in a significant way to support not just the demand we're seeing today. It takes a while to put facilities in place, but really what we expect going forward. And we returned about 80%. We thought 70% was probably a -- [couldn't conceive] of a situation where we'd be less than 70% as we looked at opportunities out there to deploy our cash, and it was actually greater than 80%. So where are we going? A continuation. As you heard from Ahmad today, you heard from Oreste about how we continue to optimize the business, how we go to market, continuing to lead and innovate. The 9% to 11% growth rate from 21% to 26%, which implies a 7.5% WFE growth rate, which translates into WFE from '21 to 26 at about $125 billion. I think everyone can do the math on that, but I just thought I'd throw that out there so people understand how we're thinking about it. Share of WFE. So we're -- we've gone about 75 to 100 basis points. I think by the time we get to 2023, which was our original plan, I think there's another 75 basis points plus of opportunity over the course of our '26 target model. Building on our gains over the last number of years in terms of operating profit improvement that we can continue to sustain our 40% to 50% incremental margin target. And delivering, as I said earlier, the 1.5x EPS leverage through our capital structure actions and then our new capital return target. If you look at the revenue, Rick showed a chart earlier. And I talked about declining capital intensity, and that was really driven by logic/foundry having a negative CAGR really from about '12 to 2018, a negative 4%. And through that period, KLA was fairly range around between $2.8 billion and $3.2 billion, most of the growth coming from some modest acquisition activity but also growth in our service business. We're now in our seventh year of growth as a company, so we saw the business continue to accelerate here. You can see the introduction of the Orbotech revenue in 2019. And as you saw from Oreste, from 2019 to 2021, 13% CAGR on that. 19% CAGR in our SEMI PC business through 2021. And of course, Service supporting that very robust demand environment, but also customers using and leveraging the installed base in different ways given the growth of the legacy markets, contributing significant growth there. So that's about a 14% or so CAGR as you get to '22. On the left side of the -- or on the right side of this chart, you see the -- some of the assumptions about how we think moving forward. If you look at the -- from '21 to '26, 10% plus growth rates in our System business, 12% to 14% in our Service business. That will translate into about $14 billion and 11% growth from '21 forward. So a lot of these metrics, I think, are important to understand about KLA. You can see that, as Rick mentioned earlier, we acquired Orbotech, added about $1 billion of revenue that had dilutive gross margins to the company average into 2019. A lot of work and focus there. Not every business carries margins like our SEMI PC business, but we were looking for markets that had market-leading positions or companies that have market leading positions in markets where complexity was increasing that we could leverage operational competencies, but also technology, customer engagement and drive improvement over time, as I suggested. So we've seen a nice trajectory of growth here. Certainly, the mix has been fairly favorable in terms of our Semi-PC contributions. And they're not quite back to where we were, but it's 63% in terms of our '22 expectations. And as everyone knows, there's a lot of pressure on cost in the near term. And so we're -- this reflects our perspective of the headwinds and tailwinds. A lot of headwinds out there in terms of cost and work for us to do here going forward, both in terms of how we manage our suppliers, how we engage ultimately with our customers and how we think about pricing in the long run in our new product offerings. Operating margins. We spend more, so the tailwind of gross margin gives us opportunities to invest more to introduce products faster. We also -- I'm pretty pleased with the execution model. We've outperformed our target. If we've been in the low to mid-50s in terms of incremental operating margins over the last few years, 27% diluted EPS growth from '18 to '21. And then free cash flow margin, consistently now above 30% and in the 88 percentile of the S&P 500. I get a lot of questions, particularly in these kinds of -- these times given some of the macro backdrop, what happens to cash flow? How do you think about the resiliency of your business? And there's really 3 factors that influence our performance if you look historically around cash flow performance. Number 1 is Service, and service continues to grow. It grows every year. We've had one down year in Service, and that was in 2009. It's a bigger part of the company. It was only down about 11%. So Service continues to be an anchor for us in terms of cash flow and cash flow predictability. Our business, despite what I said earlier about CapEx as a percent of revenue, it's fairly modest. It's not -- it's fairly asset, like, most of our investments tend to be in working capital. And if you go into contraction environments, you recoup a lot of that working capital and so you get the benefit there. And then as Ahmad talked about earlier, process control intensity is higher in development areas. So customers are always working on next-generation roadmap irrespective of what's happening with top line. And so we continue to sell products, our higher [stand] products, in those periods of time because customers are always continuing to invest. So it tends to be fairly resilient. We've been cash flow -- I think we've been cash flow positive with 90 out of 95 quarters over the last 20 years, something like that. So a very strong cash flow performance sort of through cycle, and of course, we see it accelerate in these growth environments. Best-in-class margins. And if you look at this 10-year view, it gives you a couple of things. First of all, that's across different customer mix, spending levels, different WFE environments, different process nodes. We've been able to maintain a pretty strong lead over our peers in terms of our gross margin performance. Now, our go-to-market is a different business. It's about demonstrating value, understanding the returns that your customers are getting, being very disciplined in understanding that. If you do a bad deal, it's a gift that keeps on giving from a pricing point of view because the next generation or the next series of discussions are always based on the prior transaction. So we've been able to manage this. As I said, we absorbed Orbotech in it, so very pleased with the gross margin trajectory of the company. Operating margin follows a similar suit. You can see KLA in purple at the top. Of course, they all march along to the different WFE scenarios. But one of the things we're really proud of is through this cycle, as you can see in the '19 to '21 range, the slope of the line is very similar, and a lot harder to go from the low 30s to low 40s, in the low 20s to the low 30s. So we're pretty proud of that. And ultimately, that level of profitability drives our free cash flow margin, which is a key focus area for us. Taking a 10-year view versus the SOX, gross margin at 61%. And as Rick talked about earlier, it's the sign of differentiation. Everybody thinks they have a differentiated business. The first question we ask is, what's your gross margins and why we drive our teams the way we do? Given our business model, we're #2 out of 30 in the SOX. The operating margin, we have to execute. We have to invest, deliver -- continue to deliver value and invest and execute our business. We're in the 90th percentile, #4 out of 30 in operating margins, and then in free cash flow margin, the 86 percentile. So we're pretty proud of this performance. And of course, free cash flow is quality of earnings. And then what -- how much is available for us to put to work either back into the business or in supporting capital allocation initiatives relative to shareholder returns. So over the last 4 years, we've been investing more. I wanted to take a -- break down our investment a little bit more deeply here. You can see in 2019, about $1 billion in R&D and applications. And applications are customer-facing technical resources, so these are folks that are out working with customers to drive value out of our tools. So in some ways, it's an extension of the R&D organization. And in some companies, depending on how you think about it, is it R&D really or is it cost of sales? But we've always had it in our SG&A function, but it's very technical in nature. And we went from $1 billion up to about $1.6 billion in terms of investment. And you can see in the light purple, you have the applications piece versus R&D. The blue line is R&D and apps as a percent of OpEx, so trending up about 70%. So most of our investment in terms of the increases of OpEx over the last number of years has been in these technical areas. We're getting scale out of our corporate organizations. And so we're pretty pleased that as we spend more, we're directing it in the right places. And then you can see R&D and apps as a percent of revenue trending down. Not as much leverage here as there is in corporate because we need to make sure that we can support our customers, we can support all the products that are out there. There's a much heavier burden on the engineering and apps gains in a growth environment. And so I expect that to provide some modest leverage over time, but it's an area where we need to continue to invest. On the right, you see new products. We go to market and introduce products at a much faster cadence than our competitors. And you can see across the business that we're introducing products every 1 to 2 years. Some of these are iterative product introductions, some of these are more significant. But we need to be able to go to market, gives us something new to sell, keeps us a moving target relative to competition. So it's fundamental to our portfolio strategy is a cadence of new product introduction. We talked a lot about the operating model and how it works across the different parts of the business. From a financial point of view, I'd like to look at a couple of areas. First of all, how we engage with suppliers and technology development. And there's a lot of engagement in terms of how we're going to do development for next-generation products, and that starts very early in our product development process. But the other part is how we work with customers to identify unique problems, unique problems that KLA can solve and we can solve with a financial return. Not every problem, given the cost of some of the development of some of these technologies, makes sense for us. So a lot of times we get questions from investors about, well, what's causing that issue? Is -- why can't you guys help? In a lot of cases, those are markets we have decided that doesn't make sense from a financial point of view or a sustaining sort of financial point of view in terms of product introduction. Or does it translate from R&D into production to make sense from an overall financial point of view. Can we innovate? Can we deliver a differentiated solution that supports the business model? And then ultimately, can we execute? Can we ramp the technology? Can we ramp the supply chain? Can we get the manufacturing organization scale? Can we match performance in the field? And then can we support it over time? So that's how I think about how the operating model, which is really just a series of processes about how we run the company. Either operating processes or planning processes, but how it really applies to my operational/financial world. So supply chain. So when you look at supply chain, and what I have up here in the upper left is what's happened over the course of the last 18 months or so in terms of relative performance against Semi Cap Peers. And as the industry began to strengthen in late 2020, we saw a lot of buffer that everybody has in the system, and we continue to see demand outpace supply. And so we hit this point a few quarters later where we started to have issues out there in terms of whether the industry was positioned well to support the strong demand environment. While I think we've handled it and sort of weathered it a little bit better, we're still not delivering to where our customers ultimately want us to be. But our supply chain teams have done a great job in terms of trying to manage their way through it. To understand KLA's supply chain, you have to really look at the lower left there and see the time fence. And what that represents is when do we start receiving parts to deliver a system? So the blue at the end there is what it takes to build a tool, which is about 70 days to as many as 120 days generally. So the purple there is when do we start receiving parts? So if I want to ship a tool a year from now, I was receiving parts a few months ago. And so we have to manage our supply chain to be able to shorten that intrinsic lead time to be able to deliver to our customer windows. Even with extended lead times today, it's still beyond what our normal time fence or inside our normal time fence in general. Now, we're ordering those parts sometimes a year to 2 years in advance. When you look at our suppliers, there's really 3 categories. Ahmad showed the video and talked about some of the optics subsystems. And that's one category, which is low volume, sole-source, highly complex products. It is set sort of the total potential in any given year of what we can do because it's very clear in terms of the structure of those relationships about how much capacity is available. And that capacity is about facilities, obviously, then there's equipment. And when you think about coaters and grinders, lead time is very long. And then there's trained people, and how long does it take to train people. That sets the maximum potential that we can do in any given period. And if you think about our BBP products and optical inspection, those products -- customers want a lot more than we're able to deliver, and our ability to change that sort of total potential number takes multiple years to do, frankly. And so we have a process, and we've been investing in that over the last 1.5 years. But that sets the total potential of what we can do in any given quarter. The second area -- the second bucket there was high volume, mostly sole-sourced critical components mostly around volume optics. This is where our focus is. Now, these suppliers generally worked with just us and our field of use, and so we don't compete with our competitors for parts here. Sometimes, we compete with other KLA products and we have to balance those capacity demands. But this is where our focus, and it's a day-to-day effort to go manage these suppliers. And that's what drives how we execute and deliver in any given near-term period. At the bottom is the Tier 2 and 3, 4 type component suppliers, those are the electronic components, those are semiconductors. And those are in demand. They're commodity parts, and in demand across industries and across peer companies. It's a low cost of our BOM. You think about the cost of our BOM is proportional to the way I've described the 3 categories. And usually, we can go and be creative, pay expedite fees if we have to, find gray market alternatives, qualify alternatives in our engineering teams within the time fence that's established by the other 2 categories. The other thing is our volumes tend to be lower. We're a higher mix business. So when you think about sets of electronics, I don't need as many as a lot of the process guys do. And so as a result of that, that tends to not be an issue that holds us up all that much. So what do we optimize for and what do we accept? Well, I make long-term commitments. I need my suppliers to invest. In this case, you can see our purchase commitments over time in the top chart, and you can see that that's gone up in excess of $3 billion. I feel pretty good over the long run in terms of the demand for our systems given the end market trends that the systems are living longer. And also with the service business, given the nature of the complexity of the parts we have, that I'll consume those parts over time, and I always have when you go back and look at the prior downturns and so on. So I think long-term risk tends to be fairly light. You can also see that we do carry material. We don't debate with our suppliers about who carries the material. We'll take the material. We're well capitalized. We -- they're building custom parts for us. We need them to be there for multiple years given the relationships we have, and so we'll carry long lead time parts and ensure that we can deliver in a more predictable way. We can be more flexible in terms of how we manage the business. Decade-long relationships. 96% of our key suppliers under contract. Product development, engineering and supply chain are closely linked. There is no throwing it over the wall to manufacturing that happens in some industries at KLA. Because we have to be linked from the beginning to ensure we've got the right suppliers, our platforms are living longer, so we have to keep going back and redesigning parts. And if there are issues, sometimes we have to qualify alternatives. So very closely linked process between our development teams and our manufacturing organization. Multi-million dollar commitments. I talked about executive level engagement, everybody you've seen today manages a supplier -- manages our key suppliers. And so there's a high level of engagement at the highest levels of this company, but also our supplier organizations. And we'll also make investments. And over the last couple of years, we've invested over $150 million in different structures to ensure we have dedicated capacity to support our growth. Something else is happening. You heard earlier is this pace of Moore's Law. Now that we've got a pace of Moore's Law that's a little bit more measured, historically, given that rapid cadence, is you spent a lot to develop new platforms. And that's the biggest decision you make in product development is when to go to a new platform. And the time frame in which you would develop that would drive your R&D intensity up. Products are living longer today. And you can see in the top part that this is our R&D as a percent of Semi-PC revenue. It's actually about 20% lower than this 6 to 7-year period that's cited 2011 to 2016. At the same time, the ROI on our products has actually increased about 40%. Now, this is our return on investment assessments when we look at systems business and long-term service streams. We're selling more for longer, and it's interesting when you look at Gen -- the BBP business. Gen 5, historically, we [ tend ] to use Gen 5, Gen 4 would fall off. That's not what's happened. Gen 4 is outselling Gen 5, frankly, today because of some of the dynamics in the road map and our ability to deliver incremental value out of that product. And that value is also driving cost of ownership improvement for our customers. So R&D intensity isn't the only factor in returns, but we are selling the products, and we're also able to do a lot of cost work and introduce new capability over time. As an example, when you look at the Gen 4 product line, what you have here, the bars are our spending and the blue line is the revenue. And this is a product serving the pattern inspection market. We go -- we serve this market with 3 different products. And what you can see in this case is we started developing the product, spending a significant amount of money about 3 years before in terms of major development 3 years before we started the revenue. Subsystems, as Ahmad talked about, can go back 7 years or more in terms of getting those in the right place. And then we see the sustainability of revenue over time. We have 5 product iterations here. And you can see at the top, the GM improvement. So from the time we launch a new platform, it's about use case validation. It's about technical feasibility. And then over time, we introduce new capability or productivity, drives customer cost of ownership down. And at the same time, we can also do cost optimization so we get ASP improvement, we get cost improvement. And in this particular product line, we've driven about 10 points in gross margin over the 10 years. So it works for our customers and it works for us. And then that R&D intensity either is leverage to our model or allows us to divert some of that spending into other areas. Here's an example in metrology. This is SpectraShape, which is a CD -- optical CD product, and you can see a similar trend. Now, this is a more competitive market, but you see, in this case, we've improved gross margins about 750 basis points and the return is about 10:1 in terms of the R&D investments versus the contribution that comes out of that product. Previous was 15:1, so you can see Gen 4, which is obviously a very strong example within the company, but we have plenty of examples like this across our product lines. One of the other factors driving our business is the incremental margin of Service. Now Service has a, we believe, a dilutive gross margin, has an accretive operating margin stream because there aren't many fixed costs there, but everything shows up in gross margin. And because Service has grown faster, it tends to be a dilutive force. But what you see here is you see a 15% CAGR in revenue. And you can see that the incremental margins on the service growth is less of a headwind to the company's overall gross margin. It's been consistently above 60%, if you look at the linear line. Now, what you see in the actual line is you see what happens in Service when you have to support customers. And you can see in '16 and '17, as the China started to ramp in terms of its geographic footprint, the duration of time it takes to hire service people to get them trained and competent, you have to make investments before you start to see the revenue streams and those fabs start to scale. And so you make those investments and then you see nice returns and you see the accelerated returns. And if you look at where we are today, given the strength of the overall industry, we're making a lot of those investments, again, particularly starting to make investments supporting some of the regional investment strategies that Rick talked about at the beginning. But I'll call it less of a headwind from Service to driving the Service -- incremental margins driving gross margin on the growth. So transitioning to a discussion of capital structure. You can see our free cash flow performance in over 4 years, about doubled to about $2.5 billion. As I look at 2022, and Rick showed a chart earlier, we get closer to $3 billion in terms of free cash flow expectations this year. On the left, you see generally how we go to market and what the business model is. Given our views of what you heard, we feel very comfortable with our ability to raise our long-term target. When you look at the balance sheet, where we are today and where our targets are in terms of how it supports the 2026 plan, we had about $2.6 billion in cash at the end of March. We believe the right level of cash for the company is about $2.5 billion to $3 billion in terms of our working capital requirements. Our reserves for dividends, our operating or strategic buffer and so on. So we look at that, we think that through the period, we think we can operate at that level. And it's important to establish these levels because at the end of the day, that shows that, hey, every dollar gets allocated. And that cash doesn't get valued unless it's allocated productively, and I use these words a lot. We have sized our revolver to give us an additional backstop. This was announced last week, sustainability linked at $1.5 billion now. And our leverage ratio, as I said earlier, it's been about 1x. Our long-standing corporate target has been about 1.5 to 2x. So when you look at the announcement today, the $6 billion share repurchase, roughly half in the form of an ASR that we'll execute over the next 3 to 6 months, the other half funded out of ongoing cash flow given our expectations for the business over the next 12 to 18 months. A 24% increase in the dividend. I'll talk about the dividend a little bit more. But part of our usual cadence, 13 years in a row. And we would expect we're going to add new debt into the capital structure to support these activities, and I'll have more to say about that over the next several weeks, but effectively taking us back into our target range. So not extending beyond where we've said that makes sense to operate where we think it makes sense, given the characteristics of our business. Our share repurchases, we've been fairly consistent over time in terms of how we do share repurchases. It's programmatic. We can be opportunistic when we need to be to ensure that we're buying below VWAP, which is usually our goal. And it starts with the principles I talked about before in terms of how much cash you need, what you're going to generate and then putting every dollar to work. And then the dividend, 13th consecutive. As I said, really governed by the growth rate in our free cash flow, which has been about 15%. And if you think about our earnings model, if you look at 9% to 11% revenue growth, an earnings model that gets you 1.5x that revenue growth puts you in the mid-teens. So we should be able to grow dividend, can continue growing in the mid-teens. The increase this year was larger. We take a long-term perspective, certainly, the business was stronger over the last couple of years than we expected. So a continuation in the overall strategy here. Theoretical capital allocation. The biggest difference is between the 2 periods, and they're different periods in terms of the amount of time. But what's really different, as you can see the 22% acquisition allocation versus the go forward, which is fairly modest, and really, a placeholder in terms of how we're looking at the future and an effective doubling of the share repurchases in the go-forward period. Expect to get a little bit of scale out of SG&A, continue -- expect to continue to spend in R&D, and would expect to see CapEx be generally around 3% or 4% of revenue. Our priorities haven't changed, right? We're going to fund our R&D. We're going to invest in working capital. We're going to enable inorganic opportunities when they present themselves, and we're going to invest the necessary CapEx to support our growth, and we're going to return everything else. So the '26 target model. I'll spend the next few slides talking about what that model looks like. You can see that it's predicated, and Rick showed the chart about $1.0 trillion or above out to 2030. And so when you think about semiconductor revenues as a percent of GDP, for this broader period of '04 to '16, fairly flat. And you can see a CAGR that's about in line with global GDP when you think back to our original assumptions, in the 2019 plan. Our view is, hey, look, it's going to be semiconductor revenue. Capital intensity is going to be flat to rising. And I think what's pretty clear over the last number of years, and I'll talk about it in a moment, but capital intensity is rising. It's not flat. And so that's pretty clear about where the industry is at. And then, of course, over the last number of years, we've seen an acceleration of that. So there have been reasons for it. Obviously, scaling has resumed, which has driven the design start environment that we talked about earlier. Moore's Laws enabled more benefits to fuel that new products. The pandemic's effect, I think, in the long run, but also very disciplined pricing behavior by our customers. And we've seen very public announcements there about leveraging those positions in terms of our pricing overall and with a slowing Moore's Law, not as much a requirement for discipline because you don't get as much cost reduction, particularly as customers are designing around certain attributes of Moore's Law for some of these end markets. You saw this chart earlier and this represents the design starts and wafer starts over the first 3 years of a node introduction because you're seeing today, right, you're seeing 28-nanometer being invested in as customers are investing across multiple nodes. And it also highlights the capacity reuse that was happening as the overall industry was -- or the scaling in the industry was delayed. So again, we feel very good about where 5 and 3-nanometer are. And you can see that, that dynamic drove that minus 4% CAGR that I referenced earlier. So yes, we've seen meaningful growth driven by the overall market demand but also what it means in terms of capital efficiency when you don't have a robust demand or design environment. This is capital intensity, and this is nothing new to everyone in this room, I think I'm talking to the most informed audience on some of these dynamics. But you can see capital intensity back in the year 2000 or so, so you go back 20 years, was in the mid-30s. And it went down all the way down to about 20%, and it's been rising ever since about 2013, 2014, in that time frame. And the biggest drivers of it was the wafer transition, right? 200 to 300-millimeter was a big one. The transition from IDMs to foundry was another industry consolidation, all important factors here. There is no wafer transition to come. There's always the big driver of enabling that improvement in overall capacity because due to competitive dynamics, maybe discipline, the process guys never were able to get the full value of the incremental area that was being added, but that's not coming anytime soon. So that's putting pressure on capital intensity to rise. Our model is, it's better. It grows. It doesn't grow a lot, but grows over semiconductor revenue. So semiconductor revenue is 6% to 7% in that '21 to '26 time frame. That capital intensity will drive WFE to be 7% to 8%. So one of the questions I get asked a lot is, well, they're spending so much more on what's happening and how does that happen? Well, if you look in logic and foundry, and we looked at it across 17 advanced node foundry and logic manufacturers, you can see that WFE as a percent of EBITDA has actually been fairly flat for a lot of the reasons we've talked about. And their financial performance has continued to grow. And so again, I don't think it's news for this audience. But one of the things that's been a factor in this has been the growth rate in legacy node versus leading edge and how that mix has changed. So what you see in the bottom table is you see that the mix used to be about 65-35 leading edge to legacy. Today, it's about 50-50. And if you look at the growth rates, it's about 1.75x the growth rate in that '17 to '21 period. So 20% growth in revenue from legacy versus 11% growth in revenue from leading edge. And what's important about legacy is that all the equipment is fully depreciated. So our customers' profitability in this area, particularly given, and also with their pricing strength, has driven very high profits out of this part of their revenue mix. It's not the only factor for what's driving the top 2 charts, but it's certainly a factor that is being driven by the end market dynamics today given the broad-based demand in semiconductor -- for semiconductor revenue. So if you look at our model, I talked about the 4% to 5% and where it's going and where the 7% to 8% is, we still expect with our systems businesses to grow greater than 10%, that will contribute 1% to 2%. And then service, even with the adjustment up, it only contributed about 1% because the systems business is growing faster in terms of how we're modeling it. So if you take the $14 billion from where we were in 2021 at $8.2 billion, you end up at about 11%. If you take where consensus estimates are in 2022 and go to $14 billion, you end up at about 9%. So it's kind of how we tried to bracket given where we are in 2022 and there's still some uncertainty about what will happen this year, particularly in the second half. I think, more uncertainty in other parts of the industry than we have given the comments that we've made about our views of the second half and -- that we made in earnings, which is still our perspective, but gives you some sense about how we're thinking about the overall model. This is what you saw earlier, aggregated for the company in terms of contribution. Have an M&A placeholder of about $250 million. Our focus is on our organic businesses. We think that there's nothing more compelling than driving those. We'll allocate the capital either way. But there are opportunities from time to time for us to augment our offerings typically make versus buy smaller transactions that we tuck in, some SAM augmentation from time to time in terms of new market opportunities. We just did something recently in materials, process control or verticalization to the extent that we think that there's something from a supply point of view that we need to take in. But de minimis in terms of the overall contribution and focus in terms of our 2026 plan. More detail on the overall model, 63% gross margins. Given our incremental gross margins is that about 60% to 65% overall mix assumptions, I think gross margins stay kind of about where they are right now. We've got work to do from a cost point of view, as I said, in terms of some of the more current cost pressures we're seeing and some of the pressures we're seeing from our suppliers in terms of cost increase and other inflation that's out there. But we think we can maintain our 63% gross margins. R&D a little bit of leverage, but still going to spend to ensure we've got the right portfolio fundamental to the company compared to our '23 model. 8% for SG&A. So operating margins between 41% and 43% and incremental, 40% to 50%. So with that incremental, you can certainly influence as we grow, but probably doesn't move a lot, given that we're kind of already there. And I think we can sustain the gains we've seen from the rapid growth over the last number of years in terms of how we're going to operate. So $38 in EPS, plus or minus $1.50 and the 85%. And then on the right, you see our assumptions in terms of overall mix for the industry WFE. So in closing, before we move on to some closing comments from Rick and then on to our Q&A is, hopefully, I've talked about the sustainable market outperformance we expect across the business. The portfolio strategy matters to how we go to market and compete. We're going to continue to make the investments and optimize for our supply chain to continue to deliver and meet our customer expectations and have the flexibility that's required given the inherent lead times of our products. Pace of Moore's Law right now is good. It drives a healthy demand environment and allows us to get full value out of our offerings while at the same time, improving our customers' cost of ownership and continuing to be proactive about allocating every dollar productively in the company, either go-forward cash flow or the capacity that we have. So with that, I will turn it over to Rick for some closing remarks.

Thank you, Bren. Actually just have 3 stories to close, and then we'll come back for Q&A. First of all, well, thank you for keeping your cameras on all of you. It's nice to see everybody in person and have live audience to interact with. I think our stories hopefully have explained KLA, you understand it better. Hopefully, you get a sense of how we do business. And I want to give you a couple of other kind of stories anecdotes to let you know how -- what informs our thinking. Years ago, I was the product manager on the KLA 2110, which was the high speed, first time, it was the highest speed inspection system in the market. I came to New York with our co-founder at the time to introduce this like early '90s. Product was 100x faster than the previous generation. It was amazing. I couldn't believe it. Nobody could believe it. So we came out here and gave this presentation to a group of investors and the stock was at $7. And after the meeting, the stock was at $7, nothing happened. And I talked to some investors after because I'm new to this world, and I say, "I don't understand." And I said, "We hear 50 of these a week of these great breakthrough technology stories. You need to show us the numbers." And so part of KLA's belief is we need to show you the numbers. So we'll talk about our forecast, but it's always backed up with what we've done. And so that was all along when we talk about these forecasts, like can we deliver? And we hold ourselves to a very high standard in terms of setting expectations and setting business expectations. The other thing about the 2110, later I was the General Manager and our goal was to beat Tencor. In fact, my mantra in all hands meetings was ramp, beat Tencor. Ramp 2135, beat Tencor. I was -- and I told everybody in the division, if you're not working on 1 of those 2 things, talk to your manager because you're not working on the right stuff. Make ramp, beat Tencor. That was my mantra. Let's keep it simple. So I go out and we have this new product, and I go out to talk to customers, and they're like, "We love your product. It's awesome." And I said, "That's great. So why are you still buying the Tencor tools?" And they're like, "Oh, because the economics are much better for these layers." So when we bought Tencor, we talked to those guys, and they said they were telling them the same thing, make the AIT better because it can take out the KLA systems. So the message that they're sending to everybody is if you do these things, you'll get your business. And what we found out is that's not how they made those decisions. So when we talk -- when Bren talks about our customers and our competitors being told they're going to take a market that's the incentive of all the players. But the power of this portfolio is once we had both the Tencor and the KLA offerings, we didn't have to tell them what to buy. They made the most cost-effective solution. And that's kind of the point of the power of the portfolio is those 2 factors, is when we can offer them choices, trade-offs to make, they will optimize the economics. And the third story I wanted to tell you that I think is fascinating as you think about, look, we know there's a macro storm going on right now, right? There's a lot of concerns about inflation and we understand that. So why would this industry be different? What if part of the industry is that we're part of the solution. And I'll give you an example. There was a 45-nanometer node years ago, one of our customers, and I was talking to them. And they had, this is years ago, they had the game manufacturers where they're big customers. And they were moving to 40-nanometer. And 45 to 40, of those of you remember, there was no performance improvement. It was the same technology, just less power. And I was saying, "I don't understand why are you guys going to 40?" They said, "Well, we're a game manufacturer. We have a $60 fan in every one of these game consoles. And if we go to 40 nanometers, we can take it out." So that node transition was not about their performance. It was about the cost savings of the power reduction. And hopefully, what you understand is a lot of what we're talking about now that we have a resumption of scaling is I firmly believe semiconductors, in many cases, will be part of the answer to lowering cost for our customers, especially when it's enterprise-based, especially when you're talking about running data centers, when you're talking about automobiles. So I would just suggest you think more broadly about the impact that semiconductors have had and can have. And when it comes to KLA, think about our track record of execution and the power of our portfolio. And with that, thank you all for this time. We're going to take 10 minutes.

No, we're going to take 5 minutes.

We're going to set up chairs. We can do that pretty quickly. Okay. And then we'll come back and we'll take on all your questions. All right. Thanks. [Break]

I think we're all set. So let's go ahead and open up Q&A. We get the mic runners here and hopefully, you guys can -- right here, straight in front of you. Name and firm, please, for the webcast. No one knows who's asking the question.

Vivek Arya from Bank of America Securities. Thanks very informative day. So I think you've made a very interesting and compelling case for the long term. My questions are, unfortunately, more about the short term and medium term, given what we are seeing in the market. So first thing is, what is your baseline assumption of WFE for this and next year? And let's say if we do go into a downturn, what is the maintenance WFE? What is the minimum that you think your customers are going to spend on process control. And in that situation kind of Part B, what happens to your margin structure?

So in terms of what we said about baseline for '22 is what we said at earnings that we see the industry at about $100 billion. It's predicated on a second half ramp, and we'll see what the process guys are able to do in the second half. But our views are unchanged from earnings from that point of view. If you look at the demand we see from customers today, we continue to see our customers push us pretty hard for deliveries, lead times are long. And so as we see this ramp into the second half of the year, I see -- don't see any indications of anything changing in terms of the trajectory as we sort of exit Q4 and move into '23. So we haven't provided a perspective on '23 WFE other than as I look at it and as we run the factories, we're continuing to drive the capacity, to deliver more capacity and have plans to be able to sustain the business moving from the December quarter.

It would be a pretty dramatic change from conversations we've had in the last few weeks with customers because customers have been making the rounds and we have obviously asked that question. But I know Ahmad and I have both met with a number of customers. And you've seen a major one just reaffirm their CapEx for next year, right? TSM just came out. So -- of course, it can change. But we're not seeing it changing right now. I think when you get to the -- what would happen if it does, obviously, the resiliency of the model, we feel pretty good about where we are in our operating margin. So you can imagine that we could absorb quite a reduction. Look, how do you decide on a dividend policy, for example, and a buyback policy? You run Monte Carlo simulations of every downturn you've had in history and you make sure you can maintain it through it. That's what we do. I mean we're pretty analytical group. And so when we go this in front of the Board and we map this out, we say, what are the dynamics? What's it been? If you ran it through, can you support that dividend? Because our view is dividends are only valued by investors if they grow and if they're maintained, not if they're optional. So that's how we go and do that. And we talked about the service business essentially funds the dividend, right? And the debt structure is not that expensive right now, right?

Yes. Look, at the end of the day, our focus is on looking for signals from our customers. And if we start to see signals, we have variable elements of our compensation structure. We have open racks as we're driving to. We're very focused, as we always have been, on delivering and managing our balance sheet. Our profitability enables us to invest in our road maps to make sure that we're in position to continue to achieve the growth objectives and gain share as we're moving through. And historically, as you look at the investments we're making in supply chain and all that, I feel very good about -- look, there's always near-term sort of excess demand or excess or no demand type of exposure. But over the long run, if you look at prior downturns, even in 2009, we brought every inventory reserve we took to the P&L within 2 years. So I think that making sure we're making the investments to support our strong -- our view of growth structurally, we're going to continue to do. The operating model is about managing through the environment. There's a number of operating processes there, and so we'll react as we need to react balancing sort of near term with our longer-term objectives.

Got it. And if I could just squeeze in a quick follow-up. Rick, if you go back to your 2019 Analyst Day, you had expectations of share gains. How did they play out? And what specific areas did they play out? And which other areas do you think that are right for share gains from here? And are there areas where you think the business might be actually subject to movements on the other side as well?

Sure. I think we had an expectation, I'll let Ahmad talk to it since he follows it very closely. We had an expectation that optical inspection based on our positioning with Gen 5 was going to gain. We actually exceeded the model that we had or that we committed there. I think the other one is metrology heads and gains..

Yes. Very much what Rick said. Optical inspection grew quite a bit, and that's where we gained share. In optical metrology specifically, in overlay, we gained share. Film thickness, which is the high end film thickness area. A lot of customers are moving to on product measurements because these gate structures are very difficult to control and monitor wafers, and we have a unique technology that enables us to do that. We grew there significantly in share. In macro inspection, Oreste spoke about hybrid bonding. That's an area where the dimensions have gotten really critical and macro inspection grew quite a bit, and we gained share. I think future opportunities are in reticle inspection.

Yes. Reticle where, as Ahmad talked about, the 8xx is in general, right. now in the numbers and the Gartner numbers and that's upside. And then, of course, after that is the 7xx. I Mean film metrology is also a business within the company, and it's the biggest business that no one ever asked me about, but it scales like a process business because every process tool or whatever the ratio is in terms of how customers add, whether it's overlay, as Ahmad talked about earlier and how that's scaling with EUV or in film metrology, we see better than market growth in those areas. And so that's been a driver for growth on the metrology side. Okay. I think the next question is over here. .

C.J. Muse with Evercore ISI. I guess 2 questions. The first one, you guided process control intensity growing again. And I guess I would love to hear your thoughts around the interplay in terms of what I imagine would be a tailwind from Intel and then perhaps a headwind from lagging edge. And then the second question is around reticle inspection for EUV. And I think you highlighted greater than 85% market share to date. And I guess -- would love to hear your thoughts on specifically 3-nanometer. And then as your confidence in terms of having your tool available for the insertion with high NA EUV. So thanks so much.

So Ahmad, why don't you go ahead?

SP-5Yes. I think on the first question, I won't name customers, but process control intensity in logic is increasing. And one of the reasons for that increase in intensity is because with EUV introduction and with smaller process designs. The process margins are getting smaller and smaller. And for that reason, we have seen optical inspection grow significantly in logic. It has always grown in foundry, but it is now significantly growing in logic. So we see that. The second part of your question related to 85%. So 85% is the overall layer share, meaning those are the total number of layers that are getting inspected on KLA. When I talked about share, I said 2 things. One of them has to do with the established market. It's established market, our share is close to 70%, which is primarily in the mass shop and wafer fab, including print check. And then as you go into the wafer fab, we have good share today because mass pelliclization is not implemented. And as mass pelliclization comes in and pitches will get reduced, we will have our 8xx system and 7xx system that comes out, and that drives. I think that covers it?

And the question about legacy. And when you look at process -- about 80% of our revenue is below. So when we think about legacy, it's 28-nanometer and above, right? And process control intensity tends to be more like memory in the legacy markets for KLA, which I'll call it, sort of 10-ish percent. And of course, that includes a lot of activity that's happening in native China also. So most of our -- when we look at those customers in terms of how they're adding capacity, typically, if they're adding capacity to existing lines or adding new capability, it's -- there's no real change. It's fairly mature. There's no real change in terms of process control intensity. If it's like in automotive, for example, where you're seeing reliability requirements change, you can see a change in behavior from customers. So a lot of these customers have sort of talked about the ability to not be able to rely on foundry for excess capacity and they need to in-source a lot of that. They were able to leverage the used market in a lot of cases. And so all that is not available anymore. And so the conversations with those customers is that it's a different CapEx pattern moving forward, but it really would require a change in what they're doing or product specifications for our customers to behave in a fundamentally different way. And as I said, it's probably 80% or so of our business tends to be the leading edge. So -- and process control intensity is very different even in mature logic foundry, which is not in the mid-teens like it is at leading edge.

And on reticle, my comments were related to 3-nanometer. You did ask that question, so it's related to 3-nanometer. I think in the mask shop, we have a very, very high presence at that node. . And really, it's because, as I talked about earlier, the pitch reduction is not that severe for our optical inspection systems, and we can cover most of the reticles, probably around 90% to 95%. And whatever that's left over 1 or 2 critical layers can go to 8xx system. You do see in the marketplace, there is some initial investment on actinic inspection, and that's the reason I had put that 200 to 600. It is -- these systems are long lead times. So customers have to place orders initially, and they place them and that's why you see some rise in the actinic inspection orders. But all of this settles down as the technology is decided for HVM. And we see HVM reticles all going to KLA.

Right there, end of the second row.

Harlan Sur, JPMorgan. Thanks for hosting this event. Ahmad, you talked about some of the big inflections that are coming up, you specifically talked about the move to gate all around. You just talked about interception of actinic with high NA EUV. The one inflection that you had on your presentation, but you didn't really touch upon is the move to backside power distribution, lower interconnect resistance, smaller cell size. But if you think about the architecture, it's a huge -- I feel like it's a huge overlay challenge. So is that an opportunity for KLA? And what are the other opportunities from either inspection or metrology perspective as backside distribution gets adopted by your customers? And then one question for Bren is off of the 41% to 43% EBIT margin targets, how should we think about the free cash flow margins?

Okay. I'll take the first, about Power Rail. Yes, it's a pretty significant change. Traditionally, as you add more transistors to the front side of the silicon, you added more metal layers to do the interconnect but the number of transistors are increasing significantly and customers have to come up with unique ways to interconnect all these transistors. You can do it from the front side of the wafer, but it's not as productive, most -- most customers are going to go to wafer-to-wafer bonding, which is essentially you make the entire front end and then you do some interconnect with a second wafer. Now it's very important because now these are 2 very valuable wafers that are completed and now you need to interconnect them to make sure that this happens. And overlay is a huge challenge. I go back to broadband. So KLA, all of my presentation and comments were really proxy when I talk about Gen 4 and I talk about broadband is proxy for Gen 5. It's also a proxy for optical. So we have a broadband system that enables us to choose wavelengths that will penetrate through silicon. So we have released a new product for overlay that goes to one micron wavelength that enables us to go through the silicon and make overlay measurements between one wafer to the other. That is a critical aspect of the solution. And we have now brought that tool out and all of our early development partners for wafer-to-wafer bonding are using that technology. Wafer shape is very critical because these wafers are deformed in some ways. And many years back, we acquired a company called ADE. And from that, we developed a technology called PWG that measures shape. For years, it was not moving into HVM memory decided to adopt it first. And now we see logic adopting shape metrology. If you have a defect on the backside or e front side of this wafer and you do wafer-to-wafer bonding, you will have voids and other issues. So macro inspection is going to grow in this area and also edge inspection. So to summarize, I think overlay has the biggest growth potential in this area. We have the system available. It is image-based, which is a KLA unique technology. It's broadband that enables it. And then we see many other tools that will enable wafer-to-wafer bonding. We are fully engaged with every customer. First, we were engaged in memory because memory went away for the wafer-to-wafer bonding first, and now we're engaged with logic customer.

Let me add an additional piece of information. Whenever you do the backside power distribution network, it's opening also opportunities for SPTS because all the interconnects will come to [indiscernible] and we are developing a specific project with IMEC to make sure that we can hedge through this.

And on free cash flow margin, the biggest variable in that is the growth rate that we're dealing with, right? So if you look at for now, the investments we're having to make in supply chain, the inventory we're carrying, given the way our business model works. And what was on the chart as you saw, days of inventory has been very flat for us, and I'll never perform really in line with where the process guys are just because of how we generally manage it. And our service businesses are different. So we've got to make sure, given the useful life that we're doing a lot of end-of-life buys and so on. So if you're in an accelerating environment, the working capital comments will be higher. But when you look at that plan, I think that we're low 30s today because of the demand environment we've been supporting. I think low to mid-30s is about where it will be, given the expectations around operating margin targets.

Sidney Ho with Deutsche Bank. A question on the remaining performance obligation. I know you didn't talk about today, but it has expanded substantially over to $10 billion. And that also seems to be a significant chunk tied to shipment beyond 12 months. So my question is, do you think this RPO is sustainable once these supply shortages go away? In other words, are you seeing customer behavior changing in terms of how they work with you and how they order with you in the context of what you guys talked about today? .

Yes, I'll let Ahmad take the question about just the customer engagement. He runs our sales organization focused on this part of the business. But as we said at earnings, you're right, it has accelerated. And given the lead times now, it's over $10 billion. And I said at earnings that I thought that we'd continue to see growth and demand would outpace supplier book-to-bill would be greater than one through the year. So I don't see it changing in the near term in terms of where customer demand is and haven't seen any fluctuation within it. Most of the fluctuation would come from generally from us in terms of our ability to deliver given some of the dynamics I talked about earlier. Customers are getting in the queue because if we're certainly around certain products, the lead times are even beyond where we're slotting out into '24 and so on. So -- but no change so far in that behavior. Look, we've got -- we take the orders and we make commitments and we're going to build the systems to support. And that's one of the signals that if you do get a signal, you feel like things are fundamentally changing, then you react to it. But we're not seeing anything like that right now.

Yes. Can you clarify the customer question one more time?

Yes. Is there changes to the way the customer work with you guys putting longer lead time stuff or guess just longer order times?

Yes. So customers are really engaging with us positively in this area. The example I gave you is legacy customers did really well in the beginning of this pandemic because we had trained them for years that you have to give us 9 months to 12 months lead time. And the first when lead times started to get longer and longer, we clearly saw that customers that gave us long lead times benefited. Now everybody top 5 customers clearly understand that we need to provide forecasting until 2023, '24. In some cases, '25. So I mean I'm really reacting to the earlier question also, and Rick attends some of the meetings with me and then I write passionate e-mails afterwards about how good their meeting was, which is all about when are you going to get my systems delivered as soon as possible because they want them. And while we have done really well from an operations perspective and ramped up, there is no slowdown from our customers demanding those systems. But to your specific question, I would say the top 5 customers have stepped back and realized that giving same year, same month order and PO and delivery is not going to work. So we're working with them to have a very good understanding on their near-term, midterm and long-term needs for systems. I'll give you one story, specifically related to next-generation inspection system. So here, we haven't developed a system completely yet. The node is not fully developed yet and the customer and KLA needs to make a decision on how we are going to ramp the product. So we both have come up with methods by which we're going to agree to specifications that we will take mutually risks on, but we believe we'll be able to ramp. This is a second node we're going to do this with the customer. The first node, we agreed to some very simpler specs, and then we decided we're going to take the risk and ramp the product. We did really well. Of course, we always are improving, and that's part of our customer collaboration culture, just because you agreed to this and we agreed to this, we're not going to leave each other high and dry, and we close it. And now we're doing it for the second generation systems. Lead times are long. We all have to take risks. They are taking risks. We're taking risks, but I think it's all working out really well.

This earlier question on the WFE for the year, when we say $100, I think it's gated -- it's clearly supply gated, right? It's gated by overall and mainly, I think, at this point, the process equipment. I don't think -- and the other thing that's happening, I talked about regionalization is part of the confusion customers have when they have these regionalization plans, they're surprised even though some of them aren't breaking ground, haven't broken ground and they're about to. That they're struggling getting slots or what their long-term planning is right now. So we have a customer that's Intel announced they're breaking ground in July on Ohio. How big that is and how fast it is depends on other factors. But -- so I think when we get to these obligations, part of it is because they've got these regionalization plans in place, and there's some expectation, I think what would vary over time, depending on the magnitude of whatever industry dynamic there is, is not when they started, but how many wafer starts they have at the beginning and then how much they ramp. But there's still this initial investment. And because also often process control tools are front-end loaded, not only do we ramp now as an onset with production, but they need us at the front end because what they're trying to do is ramp these new facilities. I think in many ways, capacity has elongated this current environment for WFE because there's still all these strategic plans, but they're struggling with getting the capacity. And so back to Bren's point, part of our investment with our supply chain is to make sure that we have the capacity over the long term to support these plans, and that's how we're making these investments. As Bren says, we have ways to manage that should things change. But that's the dynamic right now. And so it's not just conversations we're having about deliveries in the next -- it's -- we can't believe you guys are 2-plus years on some of these because we are, in some cases, we're 2 years. And so we're navigating through that right now.

And given our focus on leading edge right, strategic customers obviously are very important in terms of how we think about slotting. And I think the other thing is, is trying to support the ecosystem, right? So to the extent that they're semi providers in terms of how we're prioritizing, we're juggling a lot of different things, but we want to try to do what we can to keep the industry moving, right? So to the extent that there's -- we can prioritize or help with some of our slots for it to help our customers that are supporting the rest of the industry, and it's in our best interest to do that. So there's a lot of juggling that we do to try to manage around some of these dynamics.

Great. Maybe a quick one for Oreste. So on the advanced packaging, if I think about chiplet designs, I think about smaller dies and simpler implementation. So that would likely mean yields are better than the large monolithic dies. I assume there are a number of new steps that require more process control. But can you talk about why Advanced packaging is a net positive for KLA?

Well, as I said, first of all, because of the complexity comes into the packaging road map right now. So this is number one reason. So when packaging was not shrinking, you didn't need to find a very, very small difference. So the relevance of inspection and metrology was much, much lower. Also, with the [indiscernible] integration, as I said, then the verticalization of the bonding of one die on top of each other, on top of the wafer creates a lot of opportunities for us to provide unique value as I explained in the previous presentation. So people are really, really worried about voids. Whenever you bond the 1 surface on another, you create voids. And we already -- we also rolled the technical papers saying that these voids are created on a seed of a particle. So every single different defect on a wafer can create a void when you are stacking it high on top of the wafer. So the customers are coming to me and say, in the past, we need a few micro sensitivity on this inspection tool. Now we need 10 nanometer. And nobody can provide 100-nanometer inspection sensitivity back-end right now. So core KLA has a lot of tools in front end at that can be redeployed for the back end. And this is the first net positive for packaging. The second net positive for packaging comes from process -- so the process tools are becoming very, very customized for advanced packaging. And of course, we have an organization that is master in customizing tool that is SPTS. If you look back at where SPTS was really shining in the industry was creating application, creating processes that are tailored for the need of specific markets, either power, RF filters or MEMS and our packaging. So we have been partnering with the top semiconductor manufacturing, not only in the plasma dicing use cases that I showed before, but also on the position, fill the position that are very, very unique for packaging right now, in particular in rebonding, and SPTS can provide a low temperature. And this is the only provider in low temperature of this kind of bonding, keeping the same film strength, the same film quality, but done in a low temperature that create a much less impact to the chip and the wafer's health. So anyway, they are moulded . -- there is really a perfectly good reason why KLA is shining in packaging starting from relevance of process control, inspection in metrology the ability to get some of the tools that Ahmad is in the development of 10 and moving to the back end, but also the ability to create customized process solution in SPTS

And just to build on what Oreste said, one of the fastest-growing business in optical inspection is our 89xx macro inspection system. And you can look at the inflection in bond size reduction and the growth in that product line. It is just very, very clear, and it's more than doubled the business because people are just buying that system to make sure these wafers are clean before they do the wafer-to-wafer bonding. And also for all the RDL layers, we see it there, too.

The important is also the channel. So we decided 3 years ago, 2 years ago to form a dedicated packaging channel. So all in an organization working for media for me, but represent every single product KLA, including Ahmad's products and we go to the customer with a single voice. This is something that can look trivial, but has been a differentiator of KLA versus other big companies that go there with a bunch of voices, a bunch of people negotiating with the same customer. For us is, okay, we have a dedicated channel for packaging dedicated to packaging, don't get distracted by the TSMC 3-nanometer technology. It's only dedicated to that and create a solution collaborating with the customers that their customers can use in the next 2, 3, 5 years.

Yes. So just -- and even in packaging or PCB, some of the products that we have there, they're not inspection measurement, their production equipment. Like direct imaging tools, which came out of originally understanding a lot of the optics and then applying it. So some of our core competency that we're applying in those is toward production, it's not necessarily -- because it's true process control intensity and packaging is never going to approach what it is in the front end, but that's part of why we have those production tools, isn't it?.

I think we have in the back.

It's Krish Sankar from Cowen & Company. I had 2 questions, both product related. First for Ahmad. You mentioned the term broadband a couple of times, your competition also has a broadband product. Arguably, it's more brightfield or gray field optics. So I'm kind of curious how you differentiate with them. And along the path, you have a strong in optical inspection, they're strong in e-beam review. So does bundling actually work in today's world to customers accept bundle products? And then a follow-up for Oreste on the hybrid bonding side. It looks like one of the issues today is on the metrology front is the confocal acoustic microscopy, which you don't do. But is KLA doing anything on that front to help with hybrid bonding? And do you think you need to have a partnership similar to what AMAG did with BESI in order to accelerate hybrid bonding?

Okay. I think the first question was that we have -- I've spoken a few times about optical inspection and broadband. And one of our competitor has a broadband system and/or if it's brightfield or darkfield. So I'm not aware of that. If you can elaborate which competitor you're speaking about. My understanding is that the competitor that you're outlining makes a laser-based system. That would make it a single wavelength system, a small band plus/minus a couple of nanometers, that's not a broadband system. So when I say broadband, I mean every single wavelength from 190 nanometers to 400-plus nanometer is available to us, and we can pick different bands during that wavelength and the size of the band and all of those things. So we have amazing flexibility in our system, and our optics is calibrated to be able to deal with all these wavelengths. The system, I think you're referring to has a brightfield channel and a darkfield channel, it's a combined field channel. So it doesn't have the same capability. So therefore, I think they are apples and oranges at this point. That's why for all high-end inspection, KLA does a really good job serving our customers. We do also make a laser-based system for cost of ownership. It's a scattering system, very similar to our competitor. And we compete on lower end, high throughput layers. And KLA commands a lead in that segment as well. But all this is conjecture, it's really about share. As I said earlier, we signed up 2.5% year-on-year share gain since the Investor Day of 2019, we're well ahead of that plan. Optical inspection was a major aspect of it. When I say optical inspection in this context, I mean brightfield inspection from Gen 4 and Gen 5 and laser scanning combined, we grew share in that segment. I think that was your first question. There was a second question for me. I can't -- remember it.

It was for...

No, no, no, it was about review and bundling.

Bundling. Yes. So I really believe that our customers are looking for solutions that are really best-in-class. And KLA works really, really hard to build best-in-class solutions, meaning that I'm not going to be able to take a good system and couple it with a not-so-good system, and that will work really well. It doesn't really work. So when I showed you our Gen 5 system, coupled with our eDRX1, we first did an evaluation on the eDRX1 separately from Gen 5. And the customer said, "Yes, this system is performing to our expectations." And then we said, "Okay, you use that for your classic use case and we will compete in that segment." On top of it, now that you think that the system is performing appropriately, let's combine between Gen 5 and eDRX1 through this proprietary connection and improve the performance further. The same goes for the overlay example I said, we have image-based overlay scatterometry based overlay. We're growing share in overlay. The number of measurements are going up significantly. Then we go to our logic partner in this case because it was Intel and the SBIE paper was written, so it's public. And they did this evaluation with us over 4 years. We started the development of the tool with a really old electron beam system after that, we brought in our first-generation system, second-generation system. And then that system had to perform to the best of its ability, and then we found ways to combine the two. So I think that's the best way to do things is to build the best systems and then differentiate them.

Yes. Regarding the scanning acoustical microscope that easier technology can be used to find voice in a fully bonded packaging. We are not investing in this kind of technology. And the reason is it's extremely slow, we cannot scale to production. It's a similar reliable too. And actually, in the last couple of years, also our customers are redirecting the focus on, as I said, finding the efforts and the source, finding the small particle seed on top of the wafer, drive the sensitivity down of these inspection tools instead of buying a tool that is not usable for production and is not reliable, I can find meaning one void in a very, very small area of the wafer. So that's the reason why instead of developing a scanning acoustical microscope to find the voids, we are providing the customer with inspection they need to avoid this voids and the sorts that is finding the difference that eventually can clear the voids. There is a technical paper that says one void can be like more than 20x the dimension, but even 100x, mentioned a small defect. The small defect is what today the customer cares about. So -- and that's the reason why we are developing this solution for providing the sensitivity they need to find these defects at the source.

Mic's over there.

It's Joe Quatrochi from Wells Fargo. I wanted to kind of double-click on the phenomenon that we've seen in terms of the lack of tool reuse at the leading edge. How do you think about that? Does that continue into -- as part of your 2026 model? And then if it does, how do you think about the profile of the business may be changing in terms of does leading edge versus trailing edge? Maybe does that mix change over time?

Well, I'll start, and Ahmad can talk a little bit about the dynamics of the leading edge. But I think, as I said earlier, on the legacy nodes, it really -- there hasn't been -- I mean, there's been reuse in terms of buying used equipment or and so on in that part of the market. And so it really comes down given the fact that there aren't any used tools out there. It really comes down to what parts are they building and all those parts changing. And Bren talked a lot about that. And in some cases, that could accelerate the service business as well. I think it was something that if you just go back and look at the design starts and then how does that translate into wafer starts is you had the leaders that were doing the development that were benefiting from a lot of volume at those nodes. And then as they moved forward, the follow-on designs didn't happen because the attributes of Moore's Law weren't all that compelling. And so there was no technical driver generally. I mean, there were some small changes in the architecture, and there was very small changes with multi-patterning in terms of scaling but you didn't really have the technical drivers, which enable the customers to get a lot of efficiency out of that CapEx. Moving forward, in a robust demand environment is a ramp for 5-nanometer, 7-nanometers being consumed and they're still adding -- and you also have a technical driver with EUV adding this technical requirement above and beyond the capacity requirement. So as long as we have a robust environment, I think it will be -- it will be good for the business from a process control intensity point of view. And the technical drivers are increasing to a lot of the inflections that Ahmad talked about.

Yes. I think Bren covered it really well. The way I really think about it is that complexity in HVM has gone up significantly. Because this complexity has gone up and wafer and design starts have increased quite a bit in legacy and in the leading edge, that HVM is not able to maintain high levels of yield without doing intense process control. That's what we see. And we see it in our stride plan process guided us that this is going to happen in the automotive and legacy nodes. And that's why customers first stop reduced -- significantly reduced used tool purchases and they ask for new models. We are making new models for optical inspection. We are making them for metrology products or overlay products all in that legacy segment and that's driving. And there is really because of what Oreste talked about. The cost of that failure is just too high and customers want to maintain it. In leading-edge, the same thing goes on because complexities high design starts are very, very high. They're not able to tune the yield because the process chambers are dealing with different processes after a few lots. You process a few lots through the process chambers, you bring in a whole different process in the next minute, and that really drives complexity quite a bit. And for that reason, people are buying more Surfscan systems, a lot more Surfscan systems or barrier systems to make sure the chambers are clean, optical inspection systems, metrology systems. So it's really about complexity that is driving. Now if that changes, meaning wafer starts come down, will customers do a little bit more reuse? That is possible. We also have upgrade plans from node to node. So we -- when customers do that, we leverage our upgradability. But I wouldn't be having meetings with customers who plan to do reuses and then they're giving the forecasted until 2025, '26 time frame and demanding that we need that. And we have a very good model, top-down model that estimates the capacity of customers based on wafer starts that they put out. And we don't see a heavy reuse currently planned in the future forecasts up.

So if you go back in time, there was one main customer that probably drove the most reuse and it was a lower level than what we saw more recently. And that was because they were driving microprocessor technology, they'd finish with one node and go to the next. And so they would try to reuse a fair amount of the capital. And then we saw it at foundries during this period where there was no scaling happening. And so that was actually the heaviest period of reuse for us. And that has kind of gone away as scaling has resumed. I actually think the folks that drove the microprocessor road map with reuse won't be doing that either. So I think there's likely to be less going forward than historically there was. But it was really this period that we showed on that curve where it was flat, where you're going literally one technology for one phone, the next phone to the next phone, and that was where the reuse was, and that's kind of already diminished.

Yes. And my comment on legacy notes was status quo design rules, right? To the extent you have migration of design rules to more advanced design rules than to Ahmad's point, it creates some of those complexity dynamics. And you are seeing more of that in the leading edge -- or the lagging edge today in those legacy markets. So it depends if it's status quo, less so, they're migrating design rules, then more so in terms of the benefit we would see.

Okay. So while you get the microphone back, we're going to have time for one more question here on the webcast before we break for lunch. And then, of course, we can continue this Q&A at lunch for those that are here. You have the microphone. Right in that.

I wonder if you could talk to export controls a little bit, both do you anticipate the sort of surgical entity list actions that we've seen in the past? Do you think there could be broader export controls that affect your shipments in China? And I guess, do you have a voice in this? Are you -- I know some of your device customers are lobbying heavily for some of these things, if you guys have efforts to be part of that conversation? .

Of course, we're in conversations, and I think the primary focus as stated by commerce and I think DoD has been around advanced nodes, and that's a very small part of our business for that region. And Bren has quantified that before and we've not had that for some period of time. In terms of will there be additional ones, there's different conversations, but our assumption is that we'll be able to continue to support customers at the nodes that are above 14 nanometers, which is similar in what there is in terms of the memory market. The concern is more about foundry and logic than memory. And so we don't view that as being a major factor. We are in conversations about that, and we'll continue to, of course, give our perspective and work with the appropriate entities for that.

Then all the demand, virtually all the demand we have is considerably above that design rule. So not an issue with the current business levels.

Great. So thank you, everybody, for being here. We're going to conclude the webcast now. I'd ask that you take your belongings when you guys go to lunch just because I know that they may be changing this room up. And so I don't want anybody to have anything misplaced. Management will be joining you shortly, and you'll see once you're out there, everything should be organized. And we'll see you in a moment. Thank you. And the guests of Jack, you are meeting in the Hudson room.